Harbour Centre Development Ltd v. Collector of Stamp Revenue
Read the full judgment text of DCSA 2/1968 on BabelCite. This District Court judgment was delivered on 30 December 1968.
1. This is a case stated under section 18 of the Stamp Ordinance, Cap.117, by the Collector of stamp revenue to determine the stamp duty payable on an indenture dated 12th of February, 1968, made between the Hong Kong & Kowloon Wharf and Godown Company, Ltd. (hereinafter called the Wahrf Company) and the Harbour Centre Development Ltd. (hereinafter referred to as the new company). The new company was a company formed under a deed of agreement between the Wharf Company and Metropolitan Investors,
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DCSA000002/1968 IN THE DISTRICT COURT OF HONG KONG HOLDEN AT VICTORIA STAMP APPEAL NO. 2 OF 1968. -----------------
----------------- Coram: A.M. McMullin, D.J. in Court. Date of Judgment: 30 December 1968 ----------------- DECISION ----------------- 1. This is a case stated under section 18 of the Stamp Ordinance, Cap.117, by the Collector of stamp revenue to determine the stamp duty payable on an indenture dated 12th of February, 1968, made between the Hong Kong & Kowloon Wharf and Godown Company, Ltd. (hereinafter called the Wahrf Company) and the Harbour Centre Development Ltd. (hereinafter referred to as the new company). The new company was a company formed under a deed of agreement between the Wharf Company and Metropolitan Investors, Ltd. (hereinafter called Metropolitan) and in which they both held equal shares. The new company was formed for the specific purpose of holding and administering a parcel together with a multi-storey building which it was proposed to build thereon. To this enterprise the Wharf Company was to contribute a parcel of land which was in its possession and which was to be assigned to the new company for an immediate cash payment of $15,000,000; while an equal sum was to be contributed by Metropolitan towards the construction costs of the new building. The balance of those construction costs which were estimated in the agreement as a figure of $30,000,000 was to be raised by mortgage upon the plot of land so assigned. The details of the arrangements involving these three companies and which led up to the presentation for assessment of stamp duty of the indenture whereby the land was transferred to the new company, are succinctly set forth in the case stated and I do not propose to repeat them here. The question for the decision of this Court is whether the consideration for the assignment is the $15,000,000 recited therein, or whether in addition it consists of $2,500,000 which the Collector has assumed to be the value of the royalty reserved to the Wharf Company by the new company under clause 1 of an agreement dated 8th of February, 1968 and therefore part of the consideration for the assignment. 2. The transaction leading up to the disputed assessment is complicated by the fact that it took place between three separate companies, one of which is owned in equal shares by the other two. The transaction is evidenced by three separate documents: Firstly, there is the agreement of the 20th of March, 1965, between the Hong Kong and Kowloon Wharf and Godown Co., Ltd. and Metropolitan Investors Ltd. Secondly, there is the agreement dated 8th of February 1968, between the Harbour Centre Development Ltd. and the Hong Kong and Kowloon Wharf and Godown Co., Ltd. Thirdly, there is the actual deed of assignment whereby the land referred to in the first agreement is transferred to the Harbour Centre Development Ltd. The assignment was dated 12th of February, 1968. For convenience I will hereafter refer to the first two agreements as the first and second agreement respectively. 3. It is not disputed that the arrangements evidenced by these documents amount to a conveyance upon sale, nor is it disputed that the assignment attracts duty under Head 19, sub-head 2, of the Schedule to the Stamp Ordinance, Cap.117, and also additional duty under section 6 so that the consideration for the assignment, whatever it may be, is admitted to attract duty to the total extent of 5% on the amount of that consideration. The Appellant, however, refers to the phrase in the Schedule, Head 19, which provides that duty is to be charged on the amount of the consideration : "on the day of the date of the instrument", and he maintains that the instrument in this case, i.e. the deed of assignment dated 12th of February, showing as it does a simple figure of $15,000,000 as the consideration for the assignment, the Collector was entitled only to levy his 5% upon that $15,000,000 so that the total mulct should be $750,000 and not the $875,000 assessed as duty payable by the Collector. The Collector, on the other hand, maintains that the royalty referred to in the second agreement, which purports to be binding upon the new company in substitution for the rent charge referred to in the first agreement, being an extra benefit to the assignor beyond the stipulated money consideration, and not being a right or benefit inseparable from the ownership of the land as such, this extra benefit forms part of the consideration for the transaction evidenced by these three documents. The figure which the Collector has used for the assessment of the amount of duty upon that extra benefit is the figure of $2,500,000 stated in Clause 4 of the second agreement which is the sum which the assignor (i.e. the new company) must pay should it at any time wish to be quit of the royalty created by Clause 1 of the 2nd agreement. As will be seen from paragraph 10e of the case stated, the Collector admits that the maximum amount of the royalty is not ascertainable but he regards the quittance payment of $2,500,000 as "the minimum terminal value" of the royalty. In other words, this is the lowest figure assignable as the value of the right thus secured to the assignee to be quit at his option of the burden of the royalty. This is, as the text books have it, the "peg" on which he hangs his assessment. 4. Against this assessment, Mr. Litton has mounted an attack consisting in the main of three arguments which I propose to consider in order as they arose. Firstly, he says, the royalty referred to in the second agreement cannot form any part of the consideration for the assignment being referable, not to the assignment, but solely to the rent charge referred to in the first agreement. The assignment itself, the third and final documents in the series, recits the consideration simply as $15,000,000. Mr. Litton does not, I think, wish to argue that that disposes of the matter in the sense that the terms of any prior agreement must therefore be considered irrelevant. It is evident from the many cases upon the subject that the question, whether or not an instrument is a conveyance on sale of property comprised therein, depends on the true construction of the agreement for sale and other relevant documents and on the surrounding circumstances. He does not, therefore, argue that the fact that only $15,000,000 is mentioned as consideration in the assignment precludes the Court from considering the nature of the agreements which preceeded that document. He points to the fact, however, that the first agreement is between the Wharf Company and Metropolitan, and that it provides that the land will be assigned to the new company in consideration of the payment of $15,000,000 and that a later clause then purports to saddle the new company, which was not yet in existence, with a rent charge in the terms stipulated. The assignment itself recites the consideration as $15,000,000 tout court, without mentioning rent charge or royalty, while the second agreement purports to deal solely with the substitution of a royalty for the rent charge referred to in the first agreement, and makes no mention of the $15,000,000 cash consideration. If the Collector looks to the assignment and to the first agreement to determine the full amount of the consideration. he is not entitled to do so, because the first agreement is between different parties; if he relies upon the second agreement plus the assignment to indicate the full extent of the consideration he is in no better case because that agreement, counsel says, properly interpreted, does not refer to the consideration for the assignment at all but only to the consideration for the relinquishment of the rent charge. It is, he says, a very simple type of agreement and amounts to no more than a promise to substitute a royalty for a rent charge. 5. This was, to my mind, the least happy of his submissions. There is no doubt that, as he says, the first recital to the second agreement contains a plain misstatement of fact when it says that the agreement is to be : "supplemental to an agreement (hereinafter called the principal agreement) dated the 20th of march, 1965, and made between the parties hereto ........." But if the matter is to be dealt with in strict terms of the legal entities involved and their separate identities, I would have thought that the only valid conclusion to be drawn from that fact would be that the first agreement was not binding upon the new company at all. It seems to me to be contradictory to say, firstly, that the new company is not a party to the first agreement, which seeks to impose upon it the obligation to grant a rent charge, and secondly, to say that the new company, in granting a royalty under the second agreement, was discharged from an obligation under the first agreement. It was a point which Mr. Thistlethwaite for the Collector was not slow in taking. So far as he was concerned, the second agreement and the assignment, being between the same parties, embodied all the relevant terms agreed between them in relation to the transfer of the land. He was not concerned to argue that the first agreement imposed, in itself, any liability upon the new company. It was, I think, his position that the misstatement in the recital of the second agreement had no material effect upon the matters agreed between the two parties as evidenced by that document and the subsequent indenture of assignment. When, therefore, Mr. Litton maintained that the consideration expressed in the second agreement was not the grant of a royalty in consideration for the assignment of the premises but a grant of a royalty in consideration of the assignment of the premises without the reservation of the rent charge, the argument began to run in a circle. I think, with respect, that he wanted to do two contradictory things. He was concerned to underline the absurdity of the parties seeking, under the second agreement, to alter the first agreement, which had never been binding on one of them, i.e. the new company, by an exchange of obligations under the two agreement and, at the same time, to attribute such binding force to the original obligation vis a vis the new company as would enable him to restrict the substance of the second agreement wholly to that exchange. But if the substance of the second agreement was the new company's promise to grant a royalty in place of the rent charge this would presuppose that the rent charge was an obligation binding upon it in the first place. I think that is why he was constrained, in answering Mr. Thistlethwaite, to observe that it would be unrealistic to attribute to the new company a will distinct from that of its parents, the Wharf Company and Metropolitan. His contention at this point, therefore, was not merely in contradiction to that of Mr. Thistlethwaite, who wished me to keep clear the legal distinction between the three companies, but tended also to undercut his own original proposition which commenced from noting the same distinction. 6. I do not think there is substance in this submission. I think, indeed, Mr. Thistlethwaite may have been over-cautious in asking me to restrict myself solely to considering the second agreement and the deed of assignment. Mr. Litton himself, was nearer the truth when he suggested that it was unrealistic to make too sharp a distinction between the recorded acts of the three companies. I think that any purely theoretical or logical objection to construing these three documents in relation to each other disappears if we keep it in mind that the new company was in truth a child which drew its life in equal proportions from the two parent companies. The first recital to the second agreement, while offending against the literal truth, to my mind shows no more than that the new company was not merely the child but the dutiful child of its parents. In effect, by this recital and by the subsequent provisions of that agreement, it was accepting the course mapped out for it before its birth by its parents and it was agreeing to what had been planned for it, with the exception that at its request and by the indulgence of the parent companies, it was being granted in the place of one of the original obligations envisaged for it an obligation less onerous, which it was willing to observe. It was agreeing, that is to say, that the land would be assigned to it in return for a payment in cash of $15,000,000, and it was also agreeing to what, in effect, was a charge in favour of the Wharf Company of 50% of the figure by which, in any year, the trading profits of the new company should exceed $6,000,000 up to a limit of $500,000 in any year. It remains, however, to be decided whether that provision constituted such a benefit to the Wharf Company or such a detriment to the new company as would constitute it part of the consideration for the assignment and secondly, if it is part of the consideration, whether it has been correctly assessed. 7. Mr. Litton argues, secondly, that even if the royalty be regarded as part of the consideration for the assignment it was, in itself, valueless and, for that reason, not a fit subject for the Collector's scrutiny at all. He points to the fact that Head 19 of the Schedule specifically states that the consideration is to be assessed upon its value on "the day of the date of the instrument". That date is the 12th of February, 1968, and on that date it is a fact that the new company was owned in equal parts by the two parent companies. There was a parity of share-holding in each of those companies. Under Clause 1(e) of the first agreement it is provided that : "all profits shall be distributed unless both parties agree to allow for depreciation or the creation of reserves." In other words, he says, either of the parent companies could in any year, so long as they held shares in equal number in the new company, insist on the profits deriving from the new company being evenly distributed between them. Clause 1 of the second agreement, which provides for the royalty, gives to the Wharf Company the right to claim 50% of such annual profits of the new company as, after deduction of all outgoings, including tax but excluding capital expenditure, shall in any year exceed the sum of $6,000,000. Mr. Litton maintains that the royalty thus granted could only begin to have a value for the Wharf Company when and if, at any time in the future, it should cease to hold any shares, or a parity of shares with Metropolitan, in the new company. This is so, he says, because so long as parity in share-holding continued it could, under Clause 1(e) of the first agreement, exact its 50% of the profits in any case. Therefore, he says, whatever might be the position in the future, at the day of the date of this instrument the royalty provisions in the second agreement were, to all intents and purposes, valueless. 8. To any intrinsic weight this argument may have, there should perhaps be added the fact that none of the English case law upon the comparable English provisions can be employed to counter it, since the head of charge in the similar provisions in the English Stamp Act of 1891 does not contain the words "on the day of the date of the instrument". 9. Neat as this argument is, there nevertheless seem to me to be a number of serious objections to it. In the first place it assumes that so long as Metropolitan and the Wharf Company each retain a parity of shareholding in the new company, the effect of Clause 1(e) of the first agreement will be to give to each a right to enforce an equal distribution of all profits arising from the trading of the new company in any given year. While that is very likely the case, I would hesitate to say that it must necessarily be so, since there may be in the articles and memorandum of the new company, which are not before me, provisions dealing with the distribution of profits which might provide for distribution of profits upon some principle other than a simply fifty-fifty division, more especially as cluase 1(e) does not expressly provide for an even distribution of profits but merely that the profits are to be distributed. Agian, it might be said against this argument, that whatever the parties' mistake may have been in attempting to provide for either a rent charge or a royalty, their intention was to provide a benefit and a counter-balancing detriment which were of some value. The Court would, therefore, need to be sure that it was in possession of all the relevant facts before it could feel justified in assuming that the obligation which the parties had sought to throw upon the new company was valueless, in view of the plain fact that they had agreed upon the figure of $2,500,000 as the value of the right to be rid of it. 10. But I think the most fundamental objection to this particular argument was that indicated by Mr. Thistlethwaite when he referred to the royalty as a first charge upon the profits of the new company in any given year. This I think, it clearly is. Assuming that Clause 1(e) does have the effect of providing for an even distribution of profits in any year between the Wharf Company and Metropolitan Ltd. Mr. Litton's argument is based upon the premiss that the royalty in the second agreement gives to the Wharf Company no right that it does not already possess under Clause 1(e) as against Metropolitan. If that were the case, then the parties would indeed have swapped promises which were wholly devoid of value, unless one adopts the view that the royalty clause was a somewhat round about way of providing that the Wharf Company would continue to benefit from the profits of the new company at a steady rate which would be unaffected by anything it chose to do in relation to its holding of shares in that company. If the wording of the Royalty Clause is capable of yielding a more simple and obvious meaning and one which, in addition, endows the agreement with substance, then that is the meaning the Court should attribute to it. 11. To my mind clauses 1 and 2 of the second agreement are not to be interpreted in the way Mr. Litton seeks to interpret them. They are phrased as follows : "(1) In pursuance of the principal agreement as hereby varied and in consideration of the assignment of the said premises by the grantee to the grantor without the grantor's reservation of the said rent charge, the grantor hereby agrees to pay the grantee a royalty of 50% on such part of the annual net profits of the grantor as, after deduction of all out-goings, including tax but excluding capital expenditure, shall exceed the sum of $6,000,000 in any year, such royalty to be payable annually within thirty days of the issue by the auditors of the grantor of a balance sheet and account for such year. Provided that no royalty shall be payable in any year in which the net profit for that year, after deduction of out-goings as hereinbefore mentioned, shall be less than the sum of $6,000,000. (2) Any royalty payable to the grantee as hereinbefore provided shall not, in any event, exceed the sum of $500,000 in any year." 12. To my mind this language means, as the Collector suggests, that in any year which shows a profit in excess of $6,000,000 50% of any such profit is to go by way of a first charge in favour of the Wharf Company without further parley. It does not, to my mind, mean that the other 50% of such profit will then be available for distribution to Metropolitan. Rather, it seems to me that the clause means that the 50% available for distribution after the discharge of the royalty obligation is to be distributed in the manner suggested by Clause 1(e) of the first agreement. Assuming, therefore, that Clause 1(e) means that Metropolitan and the Wharf Company are equally to share the profits of the new company so long as parity of share-holding persists, the available 50% of profits after the payment of the royalty is then to be itself divided evenly between the two companies. That would mean, to take a concrete case, that if, in a given year, there were $1,000,000 of profits over the $6,000,000 provided by Clause 1, $500,000 of that would go at once by way of royalty to the Wharf Company, and the remaining $500,000 would then be divided evenly between Wharf and Metropolitan, which would mean that from the total profit over $6,000,000 the Wharf Company would benefit to the extent of $750,000 and the Metropolitan Co., Ltd. to the extent only of $250,000. This argument also fails. 13. To my mind the substance of his client's case is to be found in Mr. Litton's third and final submission. Assuming that the Collector was right in regarding the royalty as being part of the consideration for the assignment, he was nevertheless wholly wrong in seizing upon the figure of $2,500,000 referred to in Clause 4 of the second agreement as being the value of that royalty for the purpose of assessment of stamp duty. It is at this point that his criticism of the phrase used by the Collector in relation to this figure, i.e. "minimum terminal value" becomes relevant. At first sight, nevertheless, there is something compelling about the phrase and the mere fact that it appears neither in the head of charge nor anywhere else in the Ordinance, would not, I think, invalidate its use as Mr. Litton suggests. There is, at first sight, a look of commonsense about the Collector's approach to the matter. This sum, he says, is part of the parties' bargain and it was up to them to assign to the royalty whatever value they chose to assign. Although no date was fixed for the payment of it, it was, so to speak, the agreed price of the royalty at any given date; a possible benefit to the grantor, a possible detriment to the grantee. This figure, therefore, was, on the day of the date of the instrument the agreed value of that benefit or detriment and was, accordingly, a part of the consideration for the assignment. 14. It was in connection with this part of the argument that both parties referred me to certain of the English decisions under the Stamp Act of 1891. In particular I was referred to the Underground Electric Railways v. Inland Revenue Commissioners(1) and the Underground Electric Railways Company of London Ltd. and Glyn Mills, Currie & Company v. The Commissioners of Inland Revenue(2) to which I will refer, for convenience, as the first and second railway case respectively. In those two cases and in the instant case, the common issues are obvious enough. All three cases are concerned with the levying of ad valorem duty upon certain deeds in which the stated consideration was wholly or in part composed of periodic payments which would become payable, if at all, upon the arising of certain contingencies. It was natural that both sides should refer to these cases in debating the contingency and periodic payments aspects of the law relating to the assessment of ad volorem duty, but I do not think that either case is of any great assistance in the resolution of our present problem. For a start, Mr. Litton does not deny that a consideration in a conveyance on sale which included the payment in the future of a sum of money, should certain future events be realized, is such a consideration as would fall to be assessed for duty. Plainly, he could not do so in view of the clear wording of section 35 of the Ordinance, which is in terms identical with section 57 of the Stamp Act of 1891, save that in the Ordinance the word "shares" is used in substitution for the word "stock" which appears in the Act. The difficulty in the way of making use of either of these decisions in respect of our present case arises, as I see it, from the fact that there is not, in the local legislation, any provision equivalent to section 56 of the English Act providing for the charging of ad volorem duty upon consideration which consists of periodical payments. That section provides, amongst other matters, for the charging of ad volorem duty upon any consideration or part of a consideration for a conveyance on sale which consists of money payable periodically for an idefinite period. Sub-section 2 provides that in such a case ad valorem duty may be charged on the total amount which will or may, according to the terms of sale, be payable during the period of twenty years next after the day of the date of the instrument. This section, it will be observed, contains no specific provisions relating to payments which may only arise upon future contingencies. No doubt it was because of that fact that, in the first railway case, the argument was raised that, since the section contains no contingency provisions whereas the subsequent section (parallel to our section 35) makes specific provision for payment upon contingency, the idea of contingency should, therefore, be excluded from the provisions of section 56. The Court rejected this argument and found, on the contrary, that the reasoning should run in the opposite direction, viz. that section 57 established the idea of contingency in relation to charging of ad valorem duty, thereby removing a barrier to the importation of that idea into the preceding section. 15. In the second railway case the Court was not considering a conveyance upon sale at all, but a deed which was chargeable under the Head in the Schedule relating to : "bond, convenant, or instrument of any kind whatsoever, being the only or principal or primary security for any annuity .......... or for any sum or sums of money at stated periods .......... for .......... an indefinite period." Nevertheless, the question as to whether such an instrument was chargeable with ad valorem duty, in view of the fact that the sums of money stipulated would become payable only upon contingencies which might never arise, was considered by the Court and the authority of the first railway case was employed in support of the argument of the successful respondent. 16. A distinction of cardinal importance between those two decisions and the circumstances of the present case is that in neither of the railway cases was the Court called upon to consider the effect of an agreement providing for the redemption by way of lump sum of the periodic payments which had been treated as part of the consideration. In none of the instruments under scrutiny by the Revenue Commissioners in either of those cases did there exist a clause equivalent to clause 4 of the second agreement in this case. If there had been such a clause in the deed concerned in the first railway case, to take the case which, being concerned with a deed of conveyance upon sale, is closest in circumstance to the present case, it is difficult to see how it could have made any material difference to the Revenue Commissioners' decision in charging upon the basis they did, since the provision of sub-section 2 of section 56 of the Stamp Act 1891 expressly provides for what is to be done by the Commissioners whenever they are confronted with an instrument in which any part of the consideration consists of money payable periodically for an indefinite period. The sub-section enjoins upon them the duty of determining first of all what the periodic payment amounts to and then of taking that sum and multiplying it by twenty in order to arrive at a figure upon which ad valorem duty is to be calculated. In other words, it would seem to be irrelevant, under the English legislation, that the parties to such an agreement have themselves sought to arrive at an extrinsic valuation of the worth at any given moment of the contingency. It would therefore be irrelevant not only that the specified contingency might never arise but also that the payments geared upon it might be forestalled by the act of one of the parties to the agreement. This is, perhaps, a speculative digression but it brings me to the point at which I believe the Collector's argument runs into difficulty. It is admitted in the case stated that the maximum amount of royalty which might be paid was not ascertainable at the date of assessment and if there had been no redemption clause in the second agreement, it is difficult to see how the Collector could have arrived at any assessment in the absence of machinery such as is made available to the Commissioners in England by section 56 of the English Act. The Collector has seized upon the figure in the redemption clause of $2,500,000 as constituting the necessary peg upon which his assessment may be hung. That, he says, is the fixed value assigned by the parties themselves to the doubtful benefit provided by the royalty clause. Nevertheless, Mr. Thistlethwaite, somewhat to my surprise, made it clear that it was the Collector's view that what he was doing was assessing ad valorem duty upon the value of the royalty. That hardly seems to be the case. What the redemption clause seeks to do is to provide to the grantor an option at any time to buy himself out of his liabilities under the royalty. In basing his calculation upon the $2,500,000 therefore, the Collector is seeking to charge not the royalty but the option. If the $2,500,000 were a sum certain to fall due no difficulty would arise; it would be a sufficient peg without any reference to the royalty. But it is no more certain than the latter and the Collector was confronted with an uncertain event whichever way he looked. Mr. Thistlethwaite made it clear that the only contingency with which he was concerned was that provided in clause 1 in relation to profits exceeding $6,000,000 in any year, but the manner of the Collector's assessment makes it clear that that contingency had become wholly irrelevant to his calculations, and that the contingency with which he was truly confronted stemmed from the grantor's decision whether or not to redeem the royalty. 17. It was a point which was pressed upon me with compelling reiteration by Mr. Litton. The liability of an instrument to ad valorem duty upon the basis of a stated consideration contained therein must, he says, always be related to the obligation binding upon the relevant party under the agreement to pay the stated sum. If it is clear that a party under such an agreement has bound himself to pay a certain sum or sums in consideration of the benefit accruing to him so that the other party can compel his payment, it matters not that the obligation to pay will arise, if at all, only upon the happening of an uncertain event in the future. Once that event occurs he is bound by his promise and cannot draw back. This is the point summarized by Scrutton, J. in the second railway case where summarizing the law from the earlier cases, he says :-
Mr. Litton says that the word "payable" in that passage can only make sense by reference to an antecedent obligation to pay and in this he is clearly right. The grantor is fixed with the obligation of paying the amount of the royalty if and when it should arise under clause 1, but he is under no obligation whatsoever to redeem it under clause 4. It is agreed by both sides that if a definite figure can be assigned to the periodic payments represented by the royalty, that figure will form part of the consideration and be assessable as such. The Collector admits that what he has to look for is the maximum amount of the royalty which could become payable under the agreement and he admits further that he is unable to ascertain that amount. The reason he is unable to do so is not because the arising of the royalty and the amount of it in any year alike remain uncertain and depend upon contingencies but because he lacks the power to fix an arbitrary limit to the number of years for which that maximum may be assessed. In this predicament he has resorted to what Mr. Litton called, not inappropriately, a tour de force. He professes to base his assessment upon the valuation of a consideration which depends upon a contingency; he maintains that the only contingency with which he is concerned is whether or not there will be profits above $6,000,000 accruing to the new company in any year; then, lacking the statutory power to make any calculations of his own, he takes, for his assessment, the parties' figure of $2,500,000 a sum, the arising of which depends upon any uncertainty of a wholly different character, viz. the grantor's decision to pay it. 18. Mr. Thistlethwaite, who had a difficult case to present, will, I hope, forgive me if I say that in pursuing the royalty he was pursuing the rainbow; being of indefinite duration, its maximum value has no more definite location than the rainbow's foot at which, according to the fairy tale, the pot of gold is to be found. It is the point of the fable that the gold may only be located by a magical trick. The necessary magic is supplied to the Commissioners in England by s. 56 but no such formula exists in Hong Kong. I think this gap in the local law forced him into a curious position : clearly, he regarded the figure of $2,500,000 as a sum contingently payable within the meaning of section 35 and, since it was the value which the parties had assigned to the right of the grantor to be rid of the r ...(illegible) yalty, he assumed that the contingency relevant to its payment was the contingency relevant to the payment of the royalty. To my mind, it was nothing of the sort and the only way he could have supported his assessment was by arguing boldly that the $2,500,000 was a payment which would arise contingently upon the grantor's deciding to pay it. Assuming that this was the true basis of his argument, I am doubtful, nevertheless, whether it can succeed. In mere logic I think that the section where it refers to sums contingently payable, can only be construed as covering contingencies which are not coterminous with an act of will on the part of the person bound upon the contingency. If it were stretched to mean more than that, its use would come very close to a circular definition of contingency. It might be urged, of course, that the contingency set up by clause 4 can be expressed in a manner which offends neither commonsense nor the logic of section 35 by putting it in this way :
I do not think that would dispose of the purely logical difficulty, for even that phrase carries the reality of the situation no further than it would be carried by saying that if the grantor decides to redeem the royalty he will redeem the royalty. The figure agreed upon as the price for exercising the option does nothing to extend the contingency beyond the will of the person bound. 19. Although I consider this argument to be of considerable force against the view adopted by the Collector, I would hesitate to decide the point upon a possibly dubious exercise in logic-chopping. It seems to me, however, that the decided cases on the matter tell in favour of this conclusion. In all the cases to which I have been referred, including the two railway cases, the provisions being scrutinized referred to payments arising upon contingencies in the ordinary sense of uncertain events, either wholly or very largely outside the will of the parties to determine. As Mr. Litton observes, the new company is under no obligation to pay this sum of $2,500,000 at any time, whereas it is under the obligation to pay the royalty should that royalty arise. It makes little sense to say that the company will fall under the obligation to pay the $2,500,000 if it should decide to pay it. Section 35 is clearly designed, among other matters, to catch a contingency but it can scarcely be employed to manufacture a contingency out of a tautology. Mr. Litton maintains that there are no cases which can be cited to support the proposition that the privilege of exercising an option to buy out another party should be r regarded as part of the consideration for the bargain between them. Indeed, none of the cases cited to me comes anywhere near to any such proposition, and the only case that I have been able to find, which deals with such a possibility, seems to tell in the opposite direction. This is the case of the Plymouth Great Western Dock Company v. the Commissioners of Inland Revenue, a decision of the Court of Exchequer which is reported in the Law Journal for 1853 (22 Law Journal Reports New Series 188). The case was not cited in the course of the argument, but I feel justified in referring to it since I regard it primarily as a fortification of the views to which I have been able to come on the arguments and authorities adduced by both parties. It can, in any event, be at best rather in the nature of a persuasive precedent since there is no formal judgment disclosing a ratio and strong court, composed of Chief Baron Pollock with Barons Parke, Alderson and Martin, appears to have been in so little doubt on the issue raised before them that they allowed the appeal on the arguments presented without reserving, or, it would appear, without deeming it necessary to record any grounds for doing so. It is, however, an authority of especial interest in our present case for several reasons. Firstly, it deals with the assessment of ad valorem duty upon the consideration for a conveyance upon sale which was made at a period when, under the law as it stood in England, the Revenue Commissioners were devoid of the power later conferred upon them by section 56 of the Stamp Act of 1891 and they therefore stood in the same position then as the Collector in Hong Kong at present stands in relation to a consideration consisting of periodical payments for an indefinite period; secondly, the court was asked to construe provisions creating redeemable rent charges; and thirdly, the arguments of counsel in that case also closely parallel some of the arguments put before me in the present appeal. There is some confusion in this report as to the actual statute under which the assessment was made, the headnote gives it 13th and 14th Victoria Chapter 77, while the subsequent recital of the facts of the case shows it as the 14th and 15th Victoria Chapter 97. Neither of the statutes so mentioned has any bearing whatsoever upon stamp duties and I think the reporter intended to refer to the 14th and 15th Victoria Chapter 77 which is an amending and consolidating act in relation to stamp duties. 20. The case concerns an appeal by way of case stated for the opinion of the Court of Exchequer from the decision of the Commissioner of Inland Revenue as to the stamp duty chargeable upon a certain deed. Under this deed, the Plymouth Great Western Dock Co. agreed to purchase from one of the other parties to the deed for certain piers, etc., for the sum of £37,000. The deed provided that of this figure £20,000 only should be paid in cash by the company and that £15,000 should be represented by an annual rent charge of £750 subject to redemption of it by the company at any time thereafter on the payment of £15,000 upon giving twelve calendar months' notice; the residue of the total price, i.e. £12,000 was to be represented by an annual rent charge of £600 which was also made the subject of a redemption clause. In the case of the latter rent charge, however, it was provided that T.G. (the assignor) could, at any time after the 29th of September, 1858, call upon the company to redeem the rent charge for a figure of £12,000 and further, that, if no such notice should be given after the 29th of September, 1858, then the company itself might, at any time after the 29th of September, 1858, redeem the rent charge at its own option by paying the sum of £12,000 after twelve months' notice given to T.G. The Commissioners assessed the consideration at £37,000 notwithstanding these rent charge provisions and duty was charged accordingly. The company appealed against the assessment of ad valorem duty on the sums of £12,000 and £15,000 respectively represented by the rent charges of £600 and £750. Counsel for the Commissioners argued that the true consideration for the assignment was the total figure of £37,000. At page 191 counsel for the commissioners is recorded as putting the matter in this way : "the very terms of the deed show that £37,000 is the purchase or consideration money. It recites that it was agreed that the consideration for the purchase should be £37,000, and that the £15,000 and £12,000 should be represented by the two annuities .......... No difficulty can arise in this instance in fixing the values, for the parties themselves have valued their annuities. The £37,000 is a sum in gross which is a consideration for the property sold." 21. In support of the appeal, counsel for the company said as follows :- "The rent charges may never be redeemed at all, and cannot be called the consideration money for the purchase. An ad valorem duty is only leviable upon the conveyanceoof an interest, not upon the right to call for such a conveyance .........." Further on in his argument he said : "Where the purchaser does not bind himself to pay it, but is left to pay it or not, as he pleases, it cannot be a part of the consideration money." He agreed, however, that there was a distinction to be made between the two annuities because the redemption of that of £750 was at the option of the company only, whereas the rent charge of £600 was, in addition, subject to the option of the grantor to call for the redemption of the rent charge. These arguments evidently prevailed upon the Court which found that the ad valorem duty was payable as to the £12,000 but not as to the £15,000. 22. It will be observed that the Court in that case approved the assessment upon the smaller of the rent charges. It appears to have done so on the basis that the company was not left with an unfettered option to redeem or not redeem since at any time after the 29th of September, 1958, a situation might arise when it could be compelled to pay the full agreed redemption figure. In relation to the larger rent charge (as in the present case), the option to redeem arose at once upon the signing of the deed and was subject to no such possible limitation. Perhaps the logic of making such a distinction between the options might be argued further, but I regard this authority, nevertheless, as of strong persuasive force in relation to the case, which here arises, of a simple option to pay or not to pay. Whatever its shortcomings, this decision I think is a closer parallel to the circumstances in the present case than any of the other decision cited to me inasmuch as it deals with a situation in which two parties agreed upon the value to be ascribed to periodic payments of indefinite duration and expressed that agreement in the form of an option to redeem the periodic payments and secondly that this agreement occurs against a legislative background which provides no statutory power to assess the worth of such periodic payments. The present case, however, provides firmer ground for adopting the principle stated in the Plymouth case. In the latter the consideration in the deed was actually stated as £37,000, i.e. £10,000 plus the ascribed value of the two rent charges, while in our present case the consideration has been simply stated in the assignment as $15,000,000. 23. For the reasons given I am of the opinion that Mr. Litton is correct in his contention that the $2,500,000 can form no part of the consideration money for the assignment. No doubt the royalty did form part of the consideration but this manner of assessing it was wholly incorrect, nor does there appear to be, as the law at present stands, any other approach available for its due assessment. The question submitted for the opinion of the Court should therefore be answered as follows :
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Representation: Mr. He ...(illegible) instructed by ...(illegible) Lo for Appellants. Mr. E. This ...(illegible) Crown Counsel, for Respondent. (1) 1906 A.C. 21 (2) 1914 3 Q.B. 210 |