Hutchison International Ltd v. Collector of Stamp Revenue

DCSA000004/1977

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

APPELLATE JURISDICTION

STAMP APPEAL NO. 3 OF 1977

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

APPELLATE JURISDICTION

STAMP APPEAL NO. 4 OF 1977

Coram: H.H. Judge LIU, Q.C. in Court

Date of Judgment: 28th September, 1978.

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JUDGMENT

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1. By a Deed of Guarantee dated 14th June 1976, the appellant guaranteed to the Mass Transit Railway Corporation the due execution of a building contract No. 212 and of any consequential agreement entered pursuant thereto and undertook to be responsible to the Mass Transit Railway Corporation as surety for its contractor for the payment of all losses, damages, costs, charges, and expenses which might become due and payable by such contractor in default or breach. The liability of the appellant under the said Deed of Guarantee was limited to the building contract price of $43,217,539.40.

2. By a Deed of Indemnity dated 14th January 1977, one Hutchison-Boag Ltd. agreed to hold the appellant indemnified against all claims which might be made against the appellant under the said Deed of Guarantee.

3. On the 17th January 1977, the said Deed of Guarantee and the said Deed of Indemnity were duly presented to the Respondent, Collector of Stamp Revenue, for adjudication as to the respective amounts of stamp duty chargeable. Being of the opinion that each of the said deeds was a bond to secure the payment of money, the Respondent assessed the stamp duty therefor under the now repealed Head 14(1) in the Schedule to the Stamp Duty Ordinance, Cap. 117, at the rate of twenty cents for every hundred dollars or part thereof. In each of the said deeds, the ceiling of liability was $43,217,539.40, and therefore in each case, the stamp duty as assessed amounted to $86,435.20.

4. The then Head 14(1) related to "BOND to secure the payment or repayment of money".

5. The appellant duly caused to be paid the said stamp duties and served on the Respondent notices of appeal in accordance with S. 18(1) of the Stamp Duty Ordinance requiring the Respondent to state and sign a case in respect to both the said Deed of Guarantee and the said Deed of Indemnity. The case stated for the assessment of Stamp Duty with which the said Deed of Guarantee was chargeable is the subject-matter in Stamp Appeal No. 3, and a case was stated in Stamp Appeal No. 4 for the assessment of Stamp duty with which the said Deed of Indemnity was chargeable.

6. There were common questions of law and facts in both appeals which were, by consent, heard at one and the same time.

7. The appellant conceded both instruments as a deed each chargeable with stamp duty of $20.00. The bone of contention was whether any of these deeds is a bond. Mr. Horton, counsel for Appellant in both appeals, relied heavily on the time-honoured definition of a "bond" as given in Blackstone's commentaries,⁽¹⁾ Halsbury's Laws of England⁽²⁾ and the Encyclopaedia of Forms and Precedents⁽³⁾:

"A bond is an instrument under seal whereby one person binds himself to another for the payment of a specified sum of money either immediately or at a fixed future date."

8. Leaving no stone unturned, counsel drew my attention to the very fact that this definition was cited with approval by the Full Court in World Magnate Shipping Limited v. The Collector of Stamp Revenue⁽⁴⁾.

9. It was urged that proper emphasis should be placed on the words "the payment of a specified sum of money" and "at a fixed future date." Counsel submitted that at the date of each of these instruments, liability was contingent and the sum of money payable was neither fixed, definite, certain nor specified and that the future date on which liability might accrue was then unknown and thus not fixed. Counsel sought to derive support from standard forms of bond, particularly a guarantee bond in the case of building contracts. ⁽⁵⁾ In each of the precedent forms to which counsel referred, the sum payable by the obligor in the bond was prefixed and the obligation to pay was imminent but liable to be annulled by the performance or observance of a specified condition for which the bond was a guarantee. In other words, the impending obligation to pay would be defeated by the guaranteed performance or observance. The Court was also invited to peruse precedent forms of a single bond whereby the payment of a prefixed sum was not made defeasible at all. Counsel stated that his research on other precedent forms revealed no variations, though it was conceded that no particular form of words was necessary to create a bond. ⁽⁶⁾

10. With tact and ability, the court was led through an article of Professor Simpson "The Penal Bond with Conditional Defeasance" ⁽⁷⁾ with a view to gaining an insight into the historical development of a bond for illustrating the appellant's contention that a prefixed sum in a bond is an indispensable and crucial pre-requisite.

11. Counsel's pleasant display of advocacy was somewhat arrested by The North of Scotland Bank, Limited v. The Commissioners of Inland Revenue. ⁽⁸⁾ Suffice it for me to say that the case of The Scotland Bank dealt with a letter of guarantee whereby the Bank was guaranteed a customer's contingent liabilities to the extent of $3,000; whilst the practice of the Inland Revenue had been to stamp such bank guarantees in Scotland as "agreements", on this occasion the Commissioners sought to charge it as a bond with ad valorem duty. The Court of Sessions held that the letter of guarantee was an "agreement" and was not chargeable as a bond. At page 154, Lord Clyde, the Lord President, observed:

12. Counsel stressed that in the Scotland Bank's case, their lordships saw fit to adhere to the universally accepted notion of bank guarantees in Scotland and construed a letter of guarantee as an agreement. In these appeals, counsel invited me to take cognizance of the nature of these deeds as commonly understood. In reply, Mr. Barlow disclosed that all guarantees under seal had hitherto been stamped as a bond without exception and that the only one appeal against such adjudication was withdrawn. The introduction of judicial knowledge does not seem to be warranted by such disclosure, at least not in aid of the appellant.

13. The law in Scotland is decidedly dissimilar as can be seen in a passage dealing with the Scotland Bank's case in Sergeant & Sims on Stamp Duties ⁽⁹⁾ which highlights the difference in Scottish law in the matters of a guarantee bond:

"In Scotland an instrument may be chargeable as a deed notwithstanding that it has not been sealed. The affixing of a seal has no special significance in Scotland. Thus it is different in Scotland where common commercial documents as, e.g., guarantee of bank overdraft, are not regarded as bonds (North of Scotland Bank v. I.R.C., 1931 S.C.149)."

14. However, for the purpose of these appeals, the Scotland Bank's case appears to be instructive in the sense that aside from the question of execution, a bank guarantee of contingent liabilities critallised at a future date was not considered to have infringed any of the inherent qualities of a bond.

15. Mr. Barlow, counsel for Respondent, cited Independant Television Authority and Another v. I.R.C. ⁽¹⁰⁾ and Underground Electric Railways Company of London, Limited and Glyn, Mills, Currie & Co. v. The Commissioners of Inland Revenue ⁽¹¹⁾ for the proposition that a sum contingently payable may be definite and certain. Mr. Hortan characterised these two decisions as dealing primarily with deeds of covenant, in which the Courts had never to address themselves to a "bond", and counsel contended that they could be of no relevance.

16. In the Independant Television's case, the television authority had entered into an agreement to appoint a programme contractor for one of its stations at $495,600 per annum and after a time at $536,900 per annum. Save for an initial period, these fees were liable to be increased or decreased by reference to fluctuations in a half-yearly index of retail prices published by the Board of Trade. At p.485E & p.486B, Lord Radcliffe observed:

17. The case of Underground Electric Railways seems to be nearer home. In that case Mr. Justice Scrutton's decision was tested and ...(illegible) on appeal. The case concerned a deed of guarantee whereby the Underground Electric Railways Company agreed to guarantee payment of dividends at 4% per annum on certain guaranteed stock of another company by the name of Central London Railway Company. The liability of such guarantee by deed was expressly made subject to two contingencies, one of which was that a requisite number of ordinary stockholders would be prepared to accept the guaranteed stock in exchange by a certain date and the other contingency of which was that the Central London Railway Company should fail to make sufficient profits to maintain a 4% dividend. Although the ceiling of the guaranteed liability was known at the time of the execution of the deed, the ultimate actual amount payable by the guarantor, if at all, was left unquantified. In substance, the amount was merely ascertainable and the liability contingent. The Commissioners of Inland Revenue assessed the deed of guarantee as chargeable with ad valorem stamp duty on its maximum contingent liability, and against this assessment the Underground Electric Railways Company appealed. Scrutton J. dismissed the appeal, ⁽¹²⁾ and at page 217 the learned judge gave the following narrative:

"Against this latter assessment the Underground Company appealed. They contended that the document did not come within the schedule because, first, at the time of the execution of the instrument there was no fixed ascertained sum of money for which it was a security. They admitted that if there were such a fixed sum the fact that it was only payable on a contingency was immaterial, but they alleged that there must be a fixed sum, and not a sum whose amount, or existence, would not be ascertained till future events defined it. This, if correct, would not be ascertained till future events defined it. This, if correct, would free them from the $3,000 stamp altogether."

At pages 218 and 219, Scrutton J. cited with approval divers authorities:

At page 220, Scrutton J. observed:

At page 221, the learned judge concluded:

"For these reasons I am of opinion that under the heading 'Bond' where the maximum sum which can be secured by the instrument is ascertainable from the instrument itself, the ad valorem stamp must be estimated with reference to that sum, though it never may become payable, and it cannot be told at the date of the instrument whether that sum, or any less sum, or any sum at all will in fact be payable."

18. The heading under which stamp duty was chargeable in the Underground Company's case was couched in different terms, but the principle is no different. In my judgment, a sum ascertainable at a future date on a contingent basis is nevertheless a definite, specified and certain sum.

19. I do not propose to dwell at any great length on the other submissions of Mr. Horton viz. that neither the said Deed of Guarantee nor the said Deed of Indemnity binds its maker to pay at a fixed future date. Payment of the amount guaranteed or the amount indemnified was stipulated to be made upon the happening of certain contingencies specified in the instrument. A date was fixed with reference to these contingencies. I find no substance in the contention that the said Deed of Guarantee and/or the said Deed of Indemnity fixed no future date for payment.

20. Mr. Horton accepted the maximum liability under the said Deed of Guarantee as the amount chargeable with stamp duty, but counsel made no similar concession on the said Deed of Indemnity. It was argued that liability under the said Deed of Indemnity might possibly exceed that under the said Deed of Guarantee and was thus more indefinite. Extra claimable items and further contingencies cannot, in the light of the above authorities, render an otherwise ascertainable sum uncertain. In any case, the advocated different liability ceiling seems totally unsupported by the terms of the said Deed of Indemnity in annexure G to the Case Stated in Appeal No. 4, which reads as follows:

"We hereby irrevocably agree to hold you indemnified against all claims which may be made against you under the Guarantee dated 14th June 1976."

The maximum claim against the appellant under the said Deed of guarantee is $43,217,539, being the building contract price which, in my view, represents also the ceiling of the indemnity given under the said Deed of Indemnity. Moreover, if liability under the said Deed of Indemnity could ever surpass that guaranteed, it would bring little comfort to the appellant who may be required to pay more stamp duty on the higher maximum.

21. In conclusion, the respondent was correct in charging $86,435.20 for both the said Deed of Guarantee and the said Deed of Indemnity in these appeals ...(illegible) under head 14(1). Therefore, question 1 is answered in the affirmative. Question 2 does not, in the circumstances, call for an answer. Both appeals are dismissed with costs and a certificate for counsel.

Representation:

Mr. Horton instructed by Deacons for Appellant.

Mr. Barlow, counsel for Respondent.

Stamp Appeal Nos. 3 & 4 of 1977.

Cases and authorities cited in Judgment :

Cases and Authorities cited by counsel in submissions but not in judgment :

Representation:

Mr. Horton instructed by Deacons for Appellant.

Mr. Barlow, counsel for Respondent.

(1) 13th Ed. Vol. 2 p.339.

(2) 4th Ed. Vol. 12 para. 1400 at p.556.

(3) 4th Ed. Vol. 3 p.91.

(4) [1969] HKLR 67 at p.77.

(5) 3 Encyclopaedia of Forms & Precedents 4th Ed. p.110, Form 16; see also Chitty Queen's Bench Forms 20th Ed. p.524 para. 819.

(6) See 3 Encyclopaedia of Forms & Precedents 4th Ed. p.91 Footnote 2.

(7) [1966] 82 L.Q.R. 392

(8) [1931] S.C. 149

(9) 7th Ed. p.95

(10) [1960] 2 AER 481

(11) [1916] 1 K.B. 306

(12) [1914] 3 K.B. 210