Collector of Stamp Revenue v. Hongkong & Kowloon Wharf & Godown Co Ltd and Another

HCMP000454/1974

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

MISCELLANEOUS PROCEEDINGS NO. 454 OF 1974

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Coram: Li, J.

Date of Judgment:

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JUDGMENT

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1. This is an originating summons taken out by the Collector of Stamp Revenue (hereinafter referred to as 'the plaintiff') and served upon the H.K. & Kowloon Wharf & Godown Co. Ltd. (hereinafter referred to as 'the Wharf') and the H.K. Tramways Ltd. (hereinafter referred to as 'the Tramways') to seek the determination of this Court on the following questions, namely:

2. Section 168 of the Companies Ordinance provides as follows:

3. The provisions of section 30 of the Stamp Ordinance Chapter 117, so far as they are relevant to the present proceedings, are as follows:

"30. (1) Any person who effects any sale or purchase of shares or marketable securities as an agent or as a principal shall forthwith -

4. The facts in this case are straightforward and not in dispute. A list of the agreed facts are handed to me by Counsel for the plaintiff, the Wharf and the Tramways. They are as follows:

5. It is submitted on behalf of the plaintiff that, in the circumstances, although the Tramways shares of the dissenting shareholders were obtained by the Wharf by way of compulsory acquisition yet the substance of such transaction was in fact a sale. The parties effecting such a sale must prepare a contract note in compliance with section 30 of The Stamp Ordinance. The Wharf must be deemed to have effected the sale because it served notice on the dissenting shareholders which the Wharf was not obliged to do. Had the Wharf been content to hold 90% of the shares of Tramways such notice to the dissenting shareholders would not be necessary and such transaction would not take place at all. Strong reliance is placed on the case of Ridge Nominees Ltd. v. Inland Revenue Commissioners (1962) 1 Chancery p.376.

6. It is contended that the facts in that case are practically on all fours with the facts in the present case. The only difference is that section 209 of The Companies Act 1948 requires the transferee company to appoint an agent to execute an instrument of transfer on behalf of the dissenting shareholders. Such a requirement is not necessary under section 168 of the Companies Ordinance. It was held in the Ridge's case that the Companies Act 1948 had, by giving the statutory authority to the agent appointed to execute an instrument of transfer on the dissenting shareholder's behalf, brought into being that which was ex facie in all its essential characteristics of 'a transfer on sale' and that such transfer was chargeable with ad valorem duty under the Stamp Act of 1891.

7. On behalf of the Wharf and the Tramways, however, it is submitted that the circumstances in the present case disclose no sale. Relying on the case of Kirkness v. John Hudson & Co. Ltd. (1955) A.C.696. Counsel for the Wharf and the Tramways submits that there is no sale unless there is mutual consent by the purchaser as well as the vendor. Such an element is lacking in a compulsory acquisition. It is further contended that the Ridge's case is distinguishable in that there was an instrument of transfer to be stamped. An agent had to be appointed to execute the instrument of transfer on behalf of the dissenting shareholders. An instrument may, by its nature, attract stamp duty but a transaction, by itself without any instrument, attracts no stamp duty.

8. Having carefully considered these two cases cited to me I am of the opinion that the facts in the Kirkness case is quite distinguishable from the present case. In the Kirkness case private properties were vested in the British Transport Commission by virtue of the Transport Act, 1947 which also provide for compensation to be paid to the previous owners. Section 29 of the Transport Act provides that:

"Where, immediately before the date of transfer, any privately owned railway wagon is under requisition by virtue of an exercise the powers in that behalf conferred by Regulation 53 of the Defence (General) Regulations, 1939 -

9. It will be observed that by this section no consent or assent was required of the private owners. The vesting or transfer was completely effected by an Act of Parliament. In the words of Lord Simonds in page 707, he said:

"In my opinion the company's wagons were not sold, and it would be a grave misuse of language to say that they were sold. To say of a man who has had his property taken from him against his will and been awarded compensation in the settlement of which he has had no voice, to say of such a man that he has sold his property appears to me to be as far from the truth as to say of a man who has been deprived of his property without compensation that he has given it away."

10. The provisions in the section 168 of the Companies Ordinance and section 209 of the Companies Act, 1948 are quite different from the provisions in the Transport Act, 1947. The 1947 Act provides for an outright expropriation leaving the remedy of the owners to compensation as provided by the said Act. No consent or assent is required of anyone. Section 168 of the Companies Ordinance and section 209 of the Companies Act, 1948 require the assent of at least nine-tenth of the shareholders of the company to be taken over as a condition precedent before the coming into operation of the provisions of the said sections. Thus an element of consent, at least, is required of an overwhelming majority of the shareholders of the transferor company. As to the rest of the shareholders who have not indicated their assents the provisions of these two sections give them a further remedy. They are deemed to be dissenting shareholders. They may, after the prescribed notice have been served upon them, apply to Court for an order to resist the compulsory acquisition. Such compulsory acquisition takes effect only if the dissenting shareholders fail to take the action within a prescribed time limit or that the Court refuses to intervene on such an application. It may be argued that by failing to make an application to Court to oppose the compulsory acquisition, as the dissenting shareholders in the present case have failed, they have indicated impliedly their assent.

11. However, I would prefer to adopt with respect the ratio given in the judgment of Lord Justice Donovan in Ridge's case to the effect that such a consent of the dissenting shareholder had been superimposed by statute. In short the element of assent is present. It is a short judgment and I hope I will be forgiven for quoting it at length. At page 404, Lord Justice Donovan says:

12. It is abundantly clear that in his Lordship's mind he regarded such a transaction in the form of compulsory acquisition was in effect a transfer on sale.

13. It is further strengthened by the judgment of Lord Evershed M.R. in the same case at page 402, his Lordship says:

"At this stage I come back to the point from which I started. As Lord Simonds observed in the Kirkness case, we are here concerned, in the stamp duty question, with the problem: Was this instrument a 'transfer on sale.' That it came into existence as the result of the invocation of the statutory power in section 209 is not, of course, in doubt, but, as I venture to think, that statute by its machinery is directed to producing a transaction evidenced by an instrument which has upon its face all the essential characteristics of a sale. As I said when I read it, it is, on its face, an instrument executed inter parties. By statute a person, Norman Frank Baldock, was appointed an agent with authority to execute this document on behalf of Mrs. Bell, and that he did, and Mrs. Bell by statute could not deny his authority so to execute it. It seems to me, therefore, that what Parliament by this section envisages and has brought into being is an instrument which has upon its face all the attributes of a transfer on sale and takes effect as such. Given the authority of Baldock so to execute, every other element is present, including the price and the specific property."

14. This line of reasoning is followed by Foster J. in the Sun Alliance Ltd. v. I.R.C. (1972) 1 Ch. 133 when he had to consider the same question. He said at p. 147:

"In my judgment, the answer to this question is provided by the Court of Appeal decision in Ridge Nominees Ltd. v. Inland Revenue Commissioners (1962) Ch. 376. Whether one follows the wide proposition of Danckwerts L.J., at p. 406, that a sale may not always require the consensus element mentioned in Benjamin on Sale or the view of Lord Evershed M.R., at pp. 401-402, and Donovan L.J., at p. 405, that the dissent of a shareholder is overriden by an assent which the statute imposes on him does not, I think, matter. It is true that that case was dealing with section 209, but the same, I think, applies to section 206 in the case of the shareholders who voted against the scheme or did not vote at all. The argument that the shareholders who voted in favour of the scheme never assented I find difficult to follow. In my judgment, therefore, the transfer of the shares in this case is a conveyance on sale within the meaning of section 54 of and the Schedule to the Stamp Act 1891."

15. The principle in the law on stamp duty is that irrespective of what an instrument is called the instrument is liable to stamp duty only if the substance of that instrument shows a transaction which attracts stamp duty. It shows that despite the existence of an instrument in the Ridge's case and the Sun Alliance's case the Court had to decide whether the transaction itself was a transfer on sale.

16. It is also contended that the provisions of the Stamp Ordinance in Hong Kong impose a stamp duty on an instrument not a transaction. Since section 168 of the Companies Ordinance requires no instrument of transfer there is no instrument to attract any ad valorem stamp duty. The answer to this argument is simple. The lack of an instrument does not affect the nature of the transaction. Once I come to the conclusion that the transaction is in the nature and substance of a transfer on sale section 30 of the Stamp Duty Ordinance provides the answer. Sub-section (1) of the said section requires any person who effects any sale or purchase of shares or marketable securities to make and execute a contract note whether he does so as an agent or as the principal. Once a sale has been effected the person who effects it is under an obligation to make and execute a contract note which is an instrument which attracts ad valorem stamp duty under Head 18A of the schedule to the Stamp Ordinance. It is not disputed that vis-a-vis the acquisition of the shares of over 90% of the consenting shareholders of the Tramways contract note duties had been paid in respect of such transactions. Had the Wharf had been content with the acquisition of over 90% of the Tramways shares from the consenting shareholders there would have been no further transfer on sale. The Wharf did not stop there. It saw fit to serve notice upon the dissenting shareholders under the provisions of section 168 of the Companies Ordinance.

17. The acquisition of the balance of the Tramways shares on the same terms and consideration as the Wharf paid for the shares of the consenting shareholders can hardly be described as an act of theft, robbery or a swindle. In so far as a Wharf is concerned, it has every characteristic of a purchase, to say the least. The Wharf must be the person who had effected the purchase. As such it is sufficient to require the Wharf to make and execute a contract note. However, I am prepared to go further than this. Since the Wharf had invoked the operation of the provisions in section 168 of the Companies Ordinance to impose a consent on the part of the Tramways and/or the dissenting shareholders thereof for a transfer which has every characteristic of the sale, I am of the opinion that the Wharf is also the person who effected a sale. For the aforesaid reasons my answer to the questions put before me are as follows:

Representation: