Crane Stores Ltd v. The Collector of Stamp Revenue
Read the full judgment text of DCSA 3/1974 on BabelCite. This District Court judgment was delivered on 10 July 1975.
1. This is an appeal by way of case stated against the decision of the Collector of Stamp Revenue whereby he assessed stamp duty of $160,000 as being payable in respect of a certain clause contained in a lease of which the appellant was a party.
Cited by 3 cases
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DCSA000003/1974 IN THE DISTRICT COURT OF HONG KONG HOLDEN AT VICTORIA CIVIL JURISDICTION Stamp Appeal No. 3 of 1974 -----------------
----------------- Coram: Hooper, D.J. in Court. Date of Judgment: 10 July 1975 ----------------- JUDGMENT ----------------- 1. This is an appeal by way of case stated against the decision of the Collector of Stamp Revenue whereby he assessed stamp duty of $160,000 as being payable in respect of a certain clause contained in a lease of which the appellant was a party. 2. The facts are succinctly set out in the case stated which is in the following terms :-
3. There was no suggestion by either side that the $8,000,000.00 referred to in Clause 2(d) of the Lease was a premium. Both sides were concerned with the question as to whether Clause 2(d) of the Lease created any obligation at all, and whether it fell within the provisions of Section 33A(2) of the Stamp Ordinance and was therefore deemed to be a premium and therefore assessable for ad valorem stamp duty under Head 32(1). 4. Mr. Litton who appeared for the appellant developed his submission under two headings :-
5. In support of his argument under the first heading he argued that Clause 2(d) of the Lease was meaningless suggesting that the words "at any one time" indicated that it was not a covenant to expend any money at all. He argued that the obligation to spend money hangs on the preposition that the tenant chooses to spend. If therefore the tenant chose not to spend any money on interior decoration, there was no obligation to do anything certain at all. He also suggested that a test of the efficacy of a contract was to consider whether it was enforoible. He referred to the provisions for re-entry and suretyship and posed the question as to when any liability under the contract matured submitting that it was difficult to pin point such a time. He also queried as to whether the phrase "interior decorations" meant existing interior decorations or an obligation to have interior decorations done. He urged the Court to look at the substance of the contract rather than the form or figures contained therein. 6. So far as the second head was concerned he pointed out that the words of Section 33A(2) are "amount" or "value". He suggested that the consideration referred to in Section 33A(2) must move from the lessee to the lessor. Where therefore you have a stated sum by way of fine or premium which the lessee shall pay the lessor then obviously you look to that stated sum as the amount of the consideration. He then went on to query in what circumstances did you give effect to the words "or value of the consideration" in Section 33A(2). He suggested that you give effect to these words when the consideration moving from the lessee to the lessor falls to be valued. Where the situation is this the Collector has to value that consideration moving from the lessee to the lessor. He then gave an example to back up his arguments. He submitted that in the present case the tax collector was not concerned with the "amount", because there was no amount. How much it would cost to interior decorate is completely the tenant's business. He suggested that the tax collector would have to value the consideration, and suggested that the value is nil. To support his contention that the value is nil he argued that the money is not to be expended on the subject matter as there is no lease of interior decorations. Even if he is wrong on this first proposition and there is some interior decoration which is part of the subject matter and the Court can probably construe 2(d) as an obligation on the tenant to spend money on interior decorations, that such a covenant is not a covenant to erect buildings or make structural alterations or improvements to the premises. He suggested that merely to spend money on interior decorations is an obligation which could be discharged by the tenant putting one Ming Vase worth $8,000,000.00 or several Tin Tsin carpets adding up to the same figure in the premises. He argued that there is no obligation on the part of the tenant to leave these items within the premises when the lease falls into reversion. Therefore the value is nil. 7. Mr. William Lee Crown Counsel putting the case of the Collector of Stamp Revenue drew the Court's attention to Clauses 1 & 2 of the Lease and argued that Clause 1& 2(d) read together indicate clearly that the tenant has to spend $8,000,000.00 on the demised premises which is the subject matter of the lease and that the $8,000,000.00 is part of the consideration for the lease. He argued that this disposes of points 1, 2 & 3 of the appellant's grounds of appeal set out in paragraph 6 of the case stated. 8. He drew the Court's attention to the provisions of Clause 2(n) of the Lease and in particular the words "additions thereto" contained therein. He argued that these words must relate to items specified in Clause 2(d). He therefore suggested that the words "interior decoration" in Clause 2(d) must mean things of a structural nature. He suggested that the Court is well aware of the fact that buildings in Hong Kong when first occupied are often structurally added onto by lessees in accordance with the needs of the lessees depending on the type of business he wanted to carry on or the type of use that he likes to put the premises to. He suggested that the intentions of the appellant are specified in the fourth ground of appeal contained in paragraph 6(iv) of the case stated. He therefore argued that the fixtures and additions referred to in Clause 2(n) covers items of "interior decoration" spelt out in Clause 2(d), and that they formed part of the consideration for the subject matter of the lease. He pointed out that Clause 2(n) specifically states that such will revert to the lesson when the lease falls into reversion. 9. He finally dealt with the fifth point of the appellant set out in paragraph 6(v) of the case stated pointing out that one doesn't have to consider the value because the amount has been fixed, and where the amount has been fixed as valorem duty must be fixed on that sum. He argued that a valuation would be necessary in such cases as where the consideration consists of a transfer of shares or a covenant to build a house and that in these circumstances the Collector would have to value the consideration. 10. So far as Mr. Litton's arguments were concerned he disagreed that the Clause 2(d) was meaningless because it should be read with Clause 2(n). The effect of these two sub-clauses brought the consideration within the provisions of Section 33A(2). He disagreed that the covenant was unonforcible pointing out that Clause 6 (the Surety Clause) made reference to "all the covenants", and "any of the covenants". What the lessee spent the $8,000,000.00 on was of no concern to the Collector so long as the money was expended on the subject matter of the lease. He again submitted that there was no need to value the consideration, because the amount was specified therein. He denied that the words "at any one time" rendered the Clause meaningless, and pointed out that it was no concern of the Collector to know how many times the money should be spent on the subject matter. He pointed out that hardship was irrelevant in considering the construction to be placed upon Stamp Legislation and asked the Court to have regard to the history of Section 33A(2) and to construe it in accordance with Section 19 of the Interpretation and General Clauses Ordinance Cap. 1 as having a remedial effect. 11. It is quite clear from the authorities that the Court should not have too much regard for the form of the covenant, but rather to the substance of it. What is the effect of Clause 2(d)? Does it impose on the tenant an obligation to expend money on the demised premises, the subject matter of the lease, within the meaning of Section 33A(2)? Or is it a covenant to expend money on something which is not the subject matter of the lease? 12. I am of the opinion that the answer to these questions is that the Clause 2(d) falls within the provisions of Section 33A(2) and therefore attracts ad valorem stamp duty under Head 32(1) of the Schedule to the Stamp Ordinance. 13. It is true that the words "at any one time" in Clause 2(d) could be construed as meaning that the tenant was under no obligation to expend money at all unless he chose to do so. It is also open to the construction however that whatever happens he must expend at least $8,000,000.00 on interior decorations to the demised premises. The first of these constructions would not make sense, on the other hand the second construction would make very good sense. The Court will always try to breath life into a contract and give effect to the true intentions of the parties rather than hold it be meaningless and void. Looking at the substance of the clause it seems obvious to me that the landlord would never have agreed to the lease had there been any question that the tenant or lessee would not be under an obligation to expend $8,000,000.00 at the very least on the premises in question. This promise must create an obligation on the part of the tenant. If the landlord were not concerned at all with interior decoration to the subject matter of the lease, then it is difficult to see why he should have bothered to incorporate such a covenant in the lease. In my view this promise in Clause 2(d) was a very real part of the consideration in this lase. 14. Mr. Litton has argued that the test for the efficacy of the contract is to consider its enforcibility. He suggests that there is no date when the obligation, if there is an obligation, matures. It seems to me that technically the lessee has the whole period of the lease in which to exercise his obligation to expend the money referred to in Clause 2(d), and if, when the lease falls back into reversion, he has not done so, then the landlord would be able to bring an action for damages for breach of contract. Since no specific date has been referred to in the lease, it would not be possible for the landlord to exercise any right of re-entry, because he would have to wait until the termination of the lease to find out whether the tenant was going to fulfil his obligation or not. 15. I agree with Mr. Lee that Clause 2(d) should be read with Clause 2(n). Although 2(n) does not relate exclusively to 2(d), it was obviously the intention of the landlord that the should have the benefit of the money expended on interior decoration to the demised premises. Again it is difficult to see why he should have bothered to include such a provision as 2(d) in the contract if this were not so. The words "interior decoration to the demised premises" were clearly not intended to mean such things as Ming Vases or Tin Tsin Carpets or chandeliers etc. as Mr. Litton has suggested. I am of the opinion that the real intention of the parties was that this sum, which should be not less than $8,000,000.00, should be expended on decorating the inside of the demised premises. The intention of the tenant has been made abundantly clear in paragraph 6(IV) of the case stated. The limited uses to which the demised premises my be put are set out in Clause 2(h) of the Lease. i.e. "to use the demised premises as department stores and for storage and/or coffee and cake shops only." 16. Furthermore although it is not essential to my decision there is nothing in Section 33A(2) which stipulates that the undertaking or covenant should be unconditional. It would seem that this provision would apply equally to a conditional covenant or undertaking as to an unconditional one. As long as there is a sum certain to be paid, it does not matter that it is contingent upon the happening of some event over which the landlord has no control. In Sergeant on Stamp Duty the 6th Edition the learned editors refer to liability on contingent payments in the introduction to their book, in the following terms:-
Reliance is placed here on the case of Underground Electric Railways Company of London and Green Mills Carry & Co. vs. I.R.C.[1914] 3 KB page 210, a affirmed [1916] 1KB page 306 C.A. The learned editors go on "however where the instrument refers to a specified sum which is neither a maximum nor a minimum i.e. variable upwards or downwards in certain circumstances, it has been held that duty is to be charged on the specified sum." 18. The authority for this last proposition is Independent Television Authority vs. I.R.C. [1961] A.C. 427 H.L. 19. Even, therefore, if the Clause 2(d) were to be regarded as being a covenant conditional upon the happening of a particular event, (the event being the decision of the lessee to have interior decoration done at any one time) the mere fact that the obligation to expend money would be conditional upon the happening of that event, would not in my view render this clause free from stamp duty. 20. It would appear also from Monroe on the Law of Stamp Duties that the Collector of Stamp Revenue is not himself concerned with whether the contract may become unenforceable or may be found to be voidable. If stamp duty has been paid on such a document, and the contract is subsequently found to be unenforceable or voidable, the stamp duty is wasted. (See page 23 of Monroe's The Law of Stamp Duties under the heading "Lost, Spoiled and Wasted Stamps and Stamped Instruments") unless of course the Collector is subsequently able to make allowance therefore under S.10 Cap 121. 21. It follows from what I have said already that I do not agree with Mr. Litton's submission that there is any duty on the part of the Collector to value the consideration in Clause 2(d). There is a stated minimum sum to be expended in Clause 2(d) and in my view the Collector was quite right in assessing duty on that sum. The suggestion that the interior decoration would include such items as Ming Vases and Tin Tsin Carpets and expensive chandeliers etc. does not make sense. It is clear looking at the substance of the covenant that that was not the intention of the parties. It seems clear, and indeed the appellant has admitted in para. 6(IV) of the case stated that the very nature of the user for which the premises were required to be used under the lease, involved the expending of money on interior decoration. That being the case there was a promise on the part of the tenant to expend at least $8,000,000.00 on this interior decoration. The promise in covenant 2(d) to expend this amount of money on the interior decoration to the demised premises is a consideration moving from the lessee to the lessor. It is true that to fall within the provisions of Section 33A(2) the covenant or undertaking must be one to expend money on the subject matter of the lease, but in my view the only reasonable construction to be placed upon Clause 2(d), and in particular on the words "on the interior decoration to the demised premises", is that this money had to be expended on the subject matter of the lease. I do not think it is necessary for me to go into any detail as to what a Court of law would hold to fall within these words. They may fall to be considered more closely should any litigation arise between the parties in connection with this particular covenant. I am confident that having regard to the substance of the agreement the Court would arrive at a satisfactory construction giving effect to the intention of the parties and restricting the items upon which the money is to be expended to items which can properly be held to fall within these words. 22. The answers therefore to the two questions posed to this Court are (a) the whole of the stated minimum sum of $8,000,000.00 to be expended on the interior decoration to the demised premises is deemed to be a premium for the purposes of the provision of Section 33A(2) of the Stamp Ordinance Cap. 117, and (b) the amount of duty chargeable under Head 32(1) of the Schedule to the Stamp Ordinance in respect of this premium is $160,000.00.
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