Beautiland Co. Ltd. v. Commissioner of Inland Revenue
Read the full judgment text of CACV 202/1989 on BabelCite. This Court of Appeal judgment was delivered on 4 September 1990.
1. This is the judgment of the court. It concerns an appeal from an order of Barnett J. of 9 November 1989 whereby he allowed the appeal of the respondent, Beautiland Co. Ltd., ("Beautiland" by way of case stated, from a decision dated 21 September 1983 of the Taxation Board of Review (the Board) upholding a determination of the Commissioner of Inland Revenue ("the appellant") relating to the taxation of the proceeds of the sale of certain shares in Rostock Enterprises Ltd. ("Rostock").
Cited by 1 case
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CACV000202/1989
Headnote was the Taxation Board of Review right in holding that the sale of shares constituting trading or an adventure in the nature of trade? Application of the badges of trade. There was evidence that sale was not an accidental dealing but something contemplated before acquisition and it was open to Board to reach the conclusion they did. Date of acquisition of shares was relevant date for considering intention.
BETWEEN
--------------------- Coram: Hon. Power, J.A., Macdougall, J.A. & Hooper, J. Dates of Hearing: 18, 19, 20, 24 & 25 July 1990 Date of Handing Down of Judgment: 4 September 1990 ----------------- JUDGMENT ----------------- Power, J.A.: 1. This is the judgment of the court. It concerns an appeal from an order of Barnett J. of 9 November 1989 whereby he allowed the appeal of the respondent, Beautiland Co. Ltd., ("Beautiland" by way of case stated, from a decision dated 21 September 1983 of the Taxation Board of Review (the Board) upholding a determination of the Commissioner of Inland Revenue ("the appellant") relating to the taxation of the proceeds of the sale of certain shares in Rostock Enterprises Ltd. ("Rostock"). 2. The following are the facts which gave rise to the determination. On the 12th of March 1979 Cheung Kong (Holdings) Ltd. ("Cheung Kong") wrote to Wheelock Marden & Co. Ltd. ("Wheelock") stating that they wished to "propose that a consortium to be headed by us should be the developers for the development of the sites of your properties presently known as Wheelock House and Marden House, on the basis of a joint venture with yourselves, on the following terms and conditions." The letter then set out fifteen proposed terms and conditions. Conditions 1 and 5 were as follows:
The request for a speedy reply was heeded, for on the 15th of March, in a letter signed by P.J. Griffiths, the Deputy Chairman of Wheelock, Cheung Kong was informed that "..... in general, your proposals are acceptable subject, however, to your agreement to the terms of this letter and to approval by the Board of Crawford Realty Ltd." The letter then set out 21 terms which it is not necessary for present purposes to canvass except to point out that item 5 stated "Paragraph 5 of your letter is agreed". 3. We note that in respect of these properties the intention at the outset was to develop and sell. 4. In a further letter of the same day, again signed by Mr. P.J. Griffiths, Wheelock stated to Cheung Kong that:
On the same day Cheung Kong replied to Wheelock"
5. We cannot help but remark that both parties demonstrated a capacity to react to complex proposals involving huge amounts of money with remarkable speed. 6. A newspaper article written on the 17th of March 1979 and dealing with the joint venture stated:
7. On the 22nd of March Cheung Kong wrote again to Wheelock in a letter signed by Mr. Li Ka Shing their Chairman, stating:
The final paragraph of this letter ended:
8. The annexed "List of Properties" which were to be made available for "the proposed joint venture in other development projects" was, in fact, a list of shares that would be made available in companies, eight of which owned land and one which held Letter B Entitlements. In only two instances, one being the company owning the Letter B Entitlements, was 100% of the shareholding offered. In two instances where the offer was for 50% or less of the shares the proposed development was stated in Remark 1 at the foot of the list to be "subject to the agreement of the other shareholders". It is clear from this that the interests offered by Cheung Kong to the joint venture were not land. The joint venture was to hold shares in other companies which were the owners of land or, in one instance, Letter B Entitlements. 9. The owner of the ninth property on the list, described as "Subsection (1) and the Remaining Portion of Section B of Lot No. 665 in DD. 126, Tin Shui Wai, Yuen Long", is stated to be Rostock Enterprises Ltd. The area of that property is stated to be "52.36% of 50,000,000 sq.ft.", and its valuation to be "$200m". The "%tage price", i.e. the price to be paid by the joint venture for its 30% interest, is stated to be $60m. The first payment is stipulated to be one of $3m on agreement, with the second payment of $3m to be made within one year and the third payment, one of $54m, payable within four years. Also relevant are:
10. On the following day the 23rd of March, Wheelock in a letter signed by Mr. P.J. Griffiths replied to Cheung Kong, thanking them for their list of properties and stating, in return:
The list consisted of eight properties which were stated to be owned by Hong Kong Realty Group. Three days later, on the 26th of March, Cheung Kong replied to Wheelock in a letter sighed by Mr. Li Ka Shing attaching "a list of the properties with prices and payment terms proposed by us for your consideration." The intention here appears to have been that the joint venture would purchase the properties on the terms stated from the Hong Kong Realty Group. 11. Two days later on the 27th of March 1979 Beautiland, the company that was to be the vehicle of the joint venture, was incorporated with a share capital of $100m divided into 100m shares of $l each. This preceded the agreement between the parties for it was not until the 6th of April 1979 that Cheung Kong wrote to Wheelock a letter signed by Mr. Li Ka Shing stating:
Ten terms were set out including
12. On the 19th of April 1979, Mr. C. W. Chow of Cheung Kong wrote to Wheelock enclosing copies of the initial draft agreement proposal "for your perusal and comments". The preamble to this agreement stated:
It then set out 30 terms and conditions. we need at this time only refer to the definition of "the Properties" in paragraph 1 and to paragraph 7 (1) :
This term envisaged an acceleration in the payment of the purchase price to be paid by Beautiland if, inter alia, shares in a subsidiary or associated company or land purchased from such a company were disposed of by sale prior to the due dates for payment of the instalments of the purchase price. This clearly contemplated that the joint venture would deal in both land and shares. 13. The joint venture agreement, which was eventually signed on the 8th of June 1979 by Mr. John L. Marden and Mr. Li Ka Shing, was in somewhat different terms. The preamble was changed to state:
The proposed clause 7.1 was amended to read as follows:
14. The aforesaid "Cranmore" was Cranmore Land Company Limited, the subsidiary that Wheelock was using as their representative in the joint agreement. 15. Clause l of the agreement defines "the Properties" in the following way:
It clearly distinguishes between "the assets" and "the shares". "Sale Proceeds" are defined as moneys received from "the sale of any assets of the company whether the same be owned by the company itself or through its subsidiary or associated companies ......". Clause 10 sets out the development policy in the following terms:
Clause 17 deals with the prices for the sale of existing buildings and new buildings or units, and clause 18 refers to "the sale of assets of the Company other than the existing buildings or the New buildings or the Units". It is not entirely clear to what "assets" clause 18 was meant to have application. It would seem that it must have been meant to apply to sales of land without buildings, as clause 17 applies to sales of land with buildings. If this be so, it contemplates situations in which the joint venture would sell land without developing it. This could only have application to the properties numbered 7 and 8 acquired from the Hong Kong Realty Group. As assets are distinguished from shares in the definition of "the Properties", there is no provision for the sale of shares in the body of the agreement. 16. Clause 20, titled "Application of Sale Proceeds", deals only with the application of proceeds arising from the sale of assets and makes no provision for proceeds from the sale of shares. In the light of the definition of "Sale Proceeds" in clause l, it appears that this clause was intended to have application to the proceeds of the sale of land and buildings owned by the company and its subsidiary or associated companies. However, it is difficult to see how this clause could, in practice, have had this application as there would have been no proceeds to the joint venture arising from the sale of property owned by companies in which it held shares. The joint venture would only participate in the proceeds of such sales by, in due course, receiving dividends. 17. Since the provision for accelerated payment upon sale of the shares of a related company contained in paragraph 7(1) of the Initial Draft Agreement was deleted, the joint venture agreement was silent with regard to that eventuality. 18. Some seven weeks passed between the date of the letter enclosing the initial draft agreement and the signing of the joint venture agreement. These weeks encompassed the whole of May 1979. It is pertinent at this point to refer to the evidence of Mr. Henry Leung Hong Wan, a Managing Director of Wheelock at the relevant time. Mr. Leung in his evidence before the Board stated that, in May 1979, through Mr. John Cheung, who was a director of Hong Kong Realty and of Realty Development Corporation - both of which were subsidiaries of the Wheelock Group - Mr. Li Ca Shing informed Wheelock that he had received an unsolicited approach by a substantial group that Wished to acquire Rostock's interest in Tin Shui Wai. (This was the first group to make an approach in respect of Rostock's interest). He said that Mr. Li Ka Shing asked whether he should have any discussions with the group and informed Wheelock that the price for Rostock's interest in Tin Shui Wai was $350m. According to Mr. Leung, Wheelock was quite surprised at this price because only two months or so earlier Cheung Kong and Wheelock had agreed that the valuation of Rostock's interest in Tin Shui Wai was $200m -a sum which had been considered to be a fair market value at that time. Mr. Leung said that Wheelock
Clearly the possibility of the sale of Rostock's interest or the Rostock shares had been canvassed by the parties prior to the signing of the joint venture agreement. 19. The consequence of this was, as Mr. Leung said, that in a letter to Cheung Kong of the 8th of June 1979, the same date as the joint venture agreement, Cranmore stated:
This letter clearly gave Mr. Li Ka Shing, as Managing Director of the joint venture company, the power to dispose of the shares which had not yet been acquired in Rostock, at such prices and on such terms and conditions as would in his absolute opinion generate a reasonable profit. 20. A meeting of the Board of Directors of Beautiland held on 27th June 1979 and attended by Mr. John L. Marden, as Chairman, and Mr. Li Ka Shing, as managing Director, resolved that the company purchase, inter alia, "3000 full paid shares of $1 each in Rostock Enterprises Ltd. (representing 30% of the entire issued share capital therein)". 21. On the following day, the 28th of June, Beautiland purchased those shares from Cheung Kong. Some seven weeks later on the 21st of August, Cheung Kong wrote to a company named Commotra Co. Ltd. ("Commotra") (A member of the second group to make an approach in respect of Rostock's interest) stating:
There was then a list of shareholders which disclosed Beautiland's holding of 30% and its offer to sell 25%. This letter appears to have been signed by Mr. Li Ka Shing on behalf of Cheung Kong. 22. On the 12th of October 1979, Cheung Kong wrote to Beautiland informing them of the offer to sell the Rostock shares to Commotra, enclosing a copy of the letter of 21st August and stating that "there would be a commission of 1% of the selling price to be paid to intermediaries on signing of agreement". On the same day, the 12th of October 1979, a sale and purchase agreement was entered into between the owners of Rostock and Commmotra in the terms of that letter. 23. It is pertinent to turn again to the evidence of Mr. Henry Leung who stated that towards the end of July or the beginning of August 1979, another group (i.e. the second group) interested in Rostock's interest approached Mr. Li through brokers and indicated that it wished to purchase Rostock's interest in Tin Shui Wai. This group offered a higher price than that offered by the first group, and when Mr. Li Ka Shing informed Wheelock of this development, it was decided that discussions with both groups should be pursued. Mr. Leung said that the discussions with the first group broke down when they insisted on the vendors giving warranties of title which they were unwilling to give, but that the discussion with the second group resulted in a written offer made in the letter of the 21st of August 1979. From the sale of shares which resulted, Beautiland received a total consideration of $103,750,000. 24. The sale was confirmed by a formal board resolution dated 27th of December 1979. Beautiland's profit on this transaction was just over $43m and it was assessed for tax in a sum of $8,500,110 by the Commissioner of Inland Revenue. The Commissioner confirmed the assessment upon a Notice of Objection and Beautiland then appealed to the Board of Review. 25. The Board dismissed the appeal, but at Beautiland's request stated a case for determination by the High Court and posed the following questions:
26. The decision of the Board was also concerned with an appeal against the taxation of profits arriving out of what was referred to "the Hoi Tuen share transaction", which appeal it allowed. 27. The Board stated the task before them in the following terms:
28. With that in mind we now deal with the questions raised in the case stated. Question 1
29. It is clear that the Board accepted all the agreed facts. These were lengthy and referred in detail to the documentary evidence. In addition the Board relied upon facts established by the evidence of witnesses and upon inferences drawn from the evidence as a whole. 30. Although the nature and characteristics of trading are matters of law, "where there is an isolated or exceptional purchase of an asset followed by a sale, the question whether the transaction constitutes trading is an inference of fact (Halsburys Laws of England 4th Edition Vol. 23 Paragraph 218 and the authorities there cited, including Jones v. Leemihg 15 T.C. 333, IRC v. Reinhold 34 T. C. 383 and Jenkinson & Freedland 30 T.C. 389). 31. This first question assumes that the findings are correct but asks whether, as a matter of law, it was open to the Board to hold that the Rostock shares were acquired and disposed of by way of trade or an adventure in the nature of trade. 32. Where it is necessary to ascertain the real or true nature of an acquisition and sale of property a tribunal may examine evidence of all the circumstances surrounding the transaction. The construction of the written documents is a factor, but not the sole or conclusive one, in determining this question. 33. The Board at page 91 made a positive finding as to the general intention of Beautiland:
34. Having concluded what the parties' general intention was, the Board then went on to consider what their specific intention was in relation to the Rostock and the Hoi Tuen shares. They then referred to the letter of authority and the agreed facts, including the documents relating to the sale of the Rostock shares to Beautiland, and said at page 93:-
35. The Board then set out a number of factors which they regarded as fortifying that conclusion. In view of the way in which the first question is framed there is no need for us to deal with all of these factors in answering it. 36. At page 98 they said:
37. Later, at page 99 of the appeal record, they made the finding of intention to trade. This is the subject of complaint in Question 4 (ii). 38. At page 102 of the appeal record they found: -
39. It is clear in the context that in referring to "assets" the board was there referring to the Rostock shares. This is the finding attacked in Question 4 (iii).
40. This passage includes the finding attacked in Question 4 (iv).
41. It is clear from the authorities cited to us that a number of factors have to be taken into consideration before a tribunal can reach a conclusion that a transaction is a trade or an adventure in the nature of trade. There is no single fixed rule. Each case must be decided according to its own circumstances. The general line of enquiry that has been favoured by appeal Commissioners and encouraged by the Courts in England is to see whether a transaction that is said to have given rise to a taxable profit bears any of the "badges of trade". This line of enquiry has the advantage that it bases itself on objective tests of what is a trading adventure instead of concerning itself directly with the unravelling of motive. 42. This was the opinion of the Royal Commission as set out in their Final Report on "The Taxation of Profits and Income" [1955] at page 39. They identified the badges of trade as follows:-
43. So far as the first badge is concerned, shares must prima facie be considered as an investment if they are likely to yield income in the form of dividends, but this is not conclusive. Indeed there have been numerous cases where shares have been regarded as trading stock rather than an investment. Examples include Griffiths V. J.P. Harrison Limited [1963] AC 1, CIR V. waylee Investment Ltd [1990] 1 HKLR 107, and Associated London Properties Ltd v. Henriksen [1944]26 TC 46. These cases, of course, have been decided on their own special facts, but all indicate that the subject matter of the transaction is not a conclusive factor. 44. The second badge of trade relates to the length of the period of ownership. Generally speaking, property meant to be dealt in is realized within a short time after acquisition, but there are many exceptions to this as a universal rule. In this case, the shares were disposed of very soon after acquisition. That was a legitimate factor upon which the Board could and did rely in reaching a conclusion that the shares were acquired as trading stock. 45. The third badge of trade is the frequency or number of similar transactions by the same person. The Board did not rely upon this badge as supporting their decision. Mr Gardiner for aeautiland argued that a one off transaction in relation to something which is normally the subject of investment such as shares could not in the circumstances be found to be trading or dealing or an adventure in the nature of trade. However, it is clear from the authorities that there can be trading or an adventure in the nature of trade in relation to an isolated transaction - see Halsbury Vol. 23, para. 218 and the many authorities there cited, a number of which have been brought to our attention. It is significant that even an isolated transaction in shares in the year of assessment has been held to be an adventure in the nature of trade. (Griffiths v. Harrison Ltd. [1963] A.C. 1 (P.C.)) 46. The fourth badge is supplementary work on or in connection with the property realised. When there is an Organised effort to obtain profit there is a source of taxable income. In arriving at their conclusion the Board referred to the fact that brokers were involved in the sale of the Rostock shares and that the sellers, including Beautiland, eventually paid commission through Cheung Kong to these brokers. We do not consider that this matter, in itself, was of vital significance as in Hong Kong brokers are not uncommonly involved in dealings of this nature without being brought in by either party. It was, however, a peripheral consideration, and the Board's reference to it as one of the many matters that fortified their conclusion does riot, in our view, vitiate that conclusion. 47. The fifth badge relates to the circumstances that were responsible for the realisation. As the Royal Commission observed, there may be some explanation, such as a sudden emergency or opportunity calling for ready money, that negatives the inference that any plan of dealing prompted the original purchase. However, the facts in this case indicate that Beautiland knew very well before it acquired the Rostock shares that if it did so it would be able to sell them at a vast profit. Furthermore there were indications that the development of the underlying land would not be a feasible proposition because of the complications referred to by Mr. Leung. Both of these factors would militate against an intention to develop the underlying land. 48. The sixth badge of trade is "motive" Motive can be inferred from surrounding circumstances in the absence of direct evidence of the seller's intentions. Indeed, at times, the motive inferred may be contrary to that suggested by the seller. 49. The Board did not use the word "motive", but their findings as to intention clearly involved a finding of a motive to make a quick profit from the sale of the shares. 50. It was the intention of the joint venture to acquire interests in land suitable for development. Leaving aside the Letter B entitlements, with which we need not concern ourselves, it acquired two types of interest. The first was land suitable for development. The second was shares in a company which owned such land. The liability to tax would exist if, at the time of acquisition, the joint venture had the intention to trade in its interest. As regards the first type of interest the liability can be simply stated. If the joint venture, at the time it acquired the land, had the intention to trade in it then it would be liable. The liability as regards the second type of interest is equally simply stated. If the joint venture at the time of acquisition of the shares had the intention to trade in them and thus effectively to dispose at one stroke of its interest in them and in the land suitable for development, it would also be liable. 51. The relevant objects of the company as set in its Memorandum of Association are as follows:
52. It would appear to us that the intention found by the Board is consistent with the objects set out above and in particular object (12). 53. Mr Gardiner sought to derive assistance from object (13) which empowers Beautiland to carry on, inter alia, the business of an investment company. However, the fact that Beautiland was an investment company is not inconsistent with it also being a trading company. What we are concerned with is whether there were facts upon which the Board could reach their decision. 54. The definition of trade includes every adventure in the nature of trade. This necessarily includes an isolated transaction. It was clearly within the objects in Beautiland's Memorandum of Association to deal in the Rostock shares. The Board stated:
55. Mr. Gardiner took issue with this statement and submitted that it was an incorrect approach which coloured the thinking of the Board throughout. He submitted that the Board should, from the outset, have distinguished between a dealing in land and a dealing in shares and to have held that a dealing in the shares of a company which owns land is not a dealing in land. The shares, he submitted, are not land and do not give any right to land; they only give a right to participate in the dividends of the company. 56. We are satisfied, however, that the Board was simply indicating that the joint venture, which in some cases was to pursue its interest in the development of land by taking shares in companies which owned land, was, when it sold those shares, disposing of that interest, i.e. the right that the shares would give them to participate in the development of the underlying asset. 57. The concept of dealing in shares as representing the underlying land was recognised by Lord Greene M.R. in Henriksen at page 53 as well as by Margo J. at page 144 in the South African case cited by Mr. Feenstra for the appellant, namely, Income Tax Case No. 1187 (Transvaal Special Court). 58. Even if the Rostock shares had previously been perceived to be potential investment stock, a decision to make a quick sale of them at a substantial profit could make them trading stock. An example of this is provided by Clark v. Follett [1973] STC 240. 59. Mr Gardiner submitted that Beautiland by the Letter of Authority to Mr. Li reserved the intention to change the character of its investments in the Rostock shares. 60. He referred to the following passage in the judgment of Lord Wilberforce in Simmons at page 491:
61. Mr. Gardiner contended that there were three options open to Beautiland at the time of acquisition of the shares
62. And that as in any other acquisition of the shares the intention had been to hold them as investment. Moreover there would need to have been clear evidence of abandonment of that intention for the Board to be able to find that the intention was to trade in them. In these circumstances the contemplation of possible sales of the shares is insufficient to found a conclusion that the original intention had been abandoned and replaced by an intention to sell. 63. It is our view that this case can be distinguished from Simmons. In that case the House of Lords allowed an appeal on the basis that the Special Commissioners' finding that the groups original plan was to turn to account "by way of trade" investments which it could not retain was inconsistent with the other findings. The proper conclusion from the primary facts found by the Special Commissioners was that the sales were a realisation of capital. 64. In the present case the Board did not make a primary finding that at 'the time of acquisition the Rostock shares were investments. The primary facts indicate that even before the 8th June 1979 the parties were contemplating making a quick sale without developing the underlying land and had a preference to sell the Rostock shares. The sale of these was not "a mere accidental dealing" but something which was contemplated before they were acquired. It was in line with the desire referred to in the preamble to the agreement. In this respect the intention of Beautiland is not dissimilar from the intention of the respondent company in Ducker and Rees Roturbo Development Syndicate Ltd. [1928] A.C. 132. The facts in that case are set out in the judgment of Lord Buckmaster at page 139 as follows:
65. After dealing with part of the argument which had been advanced, Lord Buckmaster made the following comments at page 141:
66. The facts in that case are not dissimilar from the facts in the present case in that the possibility of sale of the shares was at all times contemplated. 67. There is not material to show that the board reached the wrong conclusion, as there was in Simmons. 68. On the facts found by them we cannot say that it was not open to the Board to reach the conclusion that the Rostock shares were acquired and disposed of by way of trade or adventure in the nature of trade. Our answer to the Question 1 is "Yes". Question 2
69. It is therefore clear that the date of acquisition is a relevant date for considering the intention. Clearly the intention had to be inferred from all the surrounding circumstances and we agree with the learned Judge in the court below when he answered this question in the affirmative. Question 3
70. Mr. Gardiner argued that that case is authority for the proposition that where an asset is "transferred" whilst within the same ownership from a taxable activity to a non-taxable activity, the accounts of the taxable activity are to be credited with a receipt equal to the market value of the asset at the time of transfer. This was because the cost of producing the asset will have to be deducted, for tax purposes, in the accounts of the taxable activity and it is only just that any increase in value thereof whilst held by and for the purpose of the taxable activity should be brought into account for tax purposes. Mr. Gardiner pointed out that this principle has been extended to cover cases where an asset is held by a person with one intention (say investment) but is then held with another intention (say trading) and refered to the judgment of Lord Wilberforce in Simmons v. I.R.C. 53 T.C. 461 at 491-492. 71. Mr. Gardiner accepted that these cases are concerned with a change of intention whilst an asset is within the same ownership i.e. since its acquisition, but argued by analogy to these cases that the Rostock shares should be valued at the time when the joint venture parties first reached an intention to sell which he said might have been at the end of May When there was an offer of $350m, or on the 8th June 1979 when the Letter of Authority was signed. 72. We reject this argument. The inescapable fact from the Board's findings is that the shares were only acquired by Beautiland on 28th June 1979 and the authorities show that they should be valued for tax purposes at the market value on that date. 73. The fact that they were acquired at an artificially low price does not mean that Beautiland was not to be taxed on the whole of its profit made from this adventure. 74. We answer this question in the affirmative. Question 4
75. The first of these findings is a general finding of intent to enter into a long-term venture for developing and/or turning landed properties to profitable account making allowance for profit-taking sales before development. 76. Mr Gardiner submitted that the intention there referred to is based on the Board's construction of the terms of the relevant documents, including in particular the joint venture agreement, and that the Board's construction of these documents was wrong. He argued in particular, that it is important to appreciate by reference to the various definitions that "development or otherwise turn to account" and "profit-taking sales" are only used in reference to the underlying interest in land (and not to any shares) and that clause 18 of the joint venture agreement (contrary to the Board's construction at pages 89 to 90) cannot apply to shares. Since this finding was the cornerstone of the Board's decision, they plainly misdirected themselves in law and otherwise came to a conclusion on the facts that no reasonable tribunal, acting judicially and properly instructed as to the relevant law could have reached. The true and only reasonable conclusion was to the contrary. This, he contended, disposes of the whole case. 77. It is clear that the Board considered the evidence as a whole in reaching their individual findings of fact. Very early in their judgment they said:
78. The Board then turned their attention to the intention of parties. They said:
79. The Board was using the terms "assets" in a broad sense to include shares and land and interests in land. They placed reliance on the preamble to the joint venture agreement that "the parties hereto are desirous of participating in the development and/or sale of the properties described in the Schedules hereto" and the fact that most of the properties consisted of shares in companies holding land or interests in land. They concluded that the terms were wide enough to cover dispositions of property both before or after development. 80. In our judgment the "and/or" combination in the preamble is a clear indication of the desire of the parties that shares could be sold before development of the underlying land. 81. The Board placed reliance on clause 18 as covering the sale of shares. But in view of the dichotomy between "shares" and "assets" in the definition of "the Properties" it is difficult to see how the assets referred to in clause 18 could include shares. In our judgment "assets" can only refer to items which can be developed and as Mr. Gardiner has argued, shares cannot be developed. We agree with Mr. Gardiner that apart form the preamble there is no provision in the body of the joint venture agreement for the sale of shares. 82. Clause 7.1 (the acceleration clause) of the draft agreement provided for the sale of the Land or the shares. The Board noted that this clause was omitted from the final agreement but that clause 10 set out the development policy. Clause 10.2 provided for the possibility of existing buildings on any land being turned to profitable account other than by development. Clause 10.5 provided "each of the parties hereto shall use its best endeavours to procure the Board of Directors of such of its related companies... to have the land and existing buildings thereon owned by such related companies, or the right to exchange for land held by such related companies, to be developed or otherwise turned to account as the Board of Directors shall decide." 83. These sub-clauses indicate an intention that land and buildings might be turned to account before development. Notwithstanding the Board's misconstruction of clause 18) we do not agree that there was insufficient evidence to justify the finding in para (i) of Question 4. Mr. Gardiner submitted that clause 10 is inconsistent with an intention to trade in shares. Although that clause is concerned with providing for a development policy, it does not in our view indicate an immutable policy to develop. In our judgment there was ample evidence before the Board for them to reach the conclusion that it was intended by the parties that there should be sales as an alternative to development and, in view of the preamble, that the sales could be of shares as well as of the underlying land or buildings. 84. The other three findings in Question 4 all relate specifically to the Rostock shares. 85. What the Board is saying in paragraph (ii) is that from a factual point of view there was nothing which it found in the evidence as to the manner in which the joint venture went about acquiring and disposing of the shares which was not in line with an intention to trade. There was in other words nothing in the manner of acquisition such as an immediate pledging of the shares or placing of them in trust which indicated an intention to hold rather than to trade. The sale of most of those shares within a short time indicated the contrary. Further para (ii) was the fourth matter which fortified the Board as to the correctness of its conclusion that Beautiland had no intention to hold the shares and had acquired them in the contemplation of turning them to profitable account. 86. It is suggested that the Board here wrongly relied upon a negative to form a positive conclusion. We are satisfied that the words cannot fairly be read in that way. The conclusion as to Beautiland's intention had already been reached. The Board was doing no more here than indicating that there was, nothing in the manner of acquisition and disposition which was not in line with that conclusion. When considering findings (ii), (iii) and (iv) in Question 4 we must ask was there evidence upon which the Board could find that the intention of Beautiland was to trade in the shares. 87. The following matters are relevant in this context:
88. Given the foregoing we cannot say that he findings in paragraphs (ii), (iii) and (iv) in Question 4 were erroneous. There was evidence upon which all these findings could legitimately be made. 89. We would, for the reasons set out above, answer all of the questions in the Case Stated in the affirmative. 90. The appeal' is allowed and the respondent's notice dismissed. We make an Order Nisi that the respondent pay the costs of the appellant to be taxed. 91. We wish to thank all counsel for the comprehensive way in which they have presented their respective arguments to us. Representation: Mr. P. Feenstra and Mr. A Wu (Crown Solicitors) for the Appellant. Mr. J. Gardiner, Q.C. and Mr. D. Yu (Messrs. Woo, Kwan Lee & Lo) for the Respondent. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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