The Cross-harbour Tunnel Co Ltd v. The Collector of Stamp Revenue
Read the full judgment text of HCSA 1/1970 on BabelCite. This High Court CFI judgment was delivered on 27 November 1970.
1. On 26th June 1969, the appellants entered into a contract (hereinafter referred to as "the construction contract") for the construction of a four-lane vehicular tunnel between Hongkong Island and Kowloon, the contract price being HK$272,533,333. Work was to commence on 1st September 1969 or "on the date that the contract shall become operative whichever is the later"; and the work was to be completed within 36 months from the date when the contract became operative. Assuming that the contract
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HCSA000001/1970 IN THE SUPREME COURT OF HONG KONG APPELLATE JURISDICTION STAMP APPEAL NO. 1 OF 1970 -----------------
----------------- Coram: Blair-Kerr, Briggs and McMullin, JJ. Date of Judgment: 27 November 1970 ----------------- JUDGMENT ----------------- Blair-Kerr, J.: 1. On 26th June 1969, the appellants entered into a contract (hereinafter referred to as "the construction contract") for the construction of a four-lane vehicular tunnel between Hongkong Island and Kowloon, the contract price being HK$272,533,333. Work was to commence on 1st September 1969 or "on the date that the contract shall become operative whichever is the later"; and the work was to be completed within 36 months from the date when the contract became operative. Assuming that the contract became operative on 1st September 1969, the parties appear to have contemplated that the tunnel would be completed by 1st September 1972; but the contract made provision for extending the time for completion in certain circumstances. On 26th September 1969 the appellants entered into a further contract (hereinafter referred to as "the engineer's contract") with a firm of consulting engineers for consultancy and site supervision services in connection with the construction of the tunnel. The engineer's fees are stated to be HK$14,600,000. Converting these two sums into sterling (taking £1 as being equivalent to HK$14.55), the total contract price for the construction of the tunnel would appear to be £19,741,000. 2. On the 17th July 1969, the appellants entered into an agreement (hereinafter referred to as "the financial agreement") with Lloyds Bank Limited (hereinafter referred to as "Lloyds") in which, after reciting the fact that the construction contract had been entered into, and that they wished to enter into the engineer's contract, it was recited that Lloyds had agreed with the appellants to make sums available to assist the financing of the construction and engineer's contracts "on the terms and conditions hereinafter appearing". 3. Various expressions used throughout the financial agreement are defined in clause 1 as follows:-
Clause 2, so far as relevant to this appeal, reads:-
The intention of the parties appears to have been that Lloyds would finance the construction of the tunnel to the extent of approximately 75% of the total cost thereof. Clause 3 reads:-
Appendix B reads:-
Clause 3(3) reads :-
The trustee letter reads :-
The letter authorises Lloyds to deal similarly with notes in regard to claims made under the engineer's contract. 4. What appears to be contemplated by clauses 7 and 8 is that upon presentation of valid claims under the construction and engineer's contracts, the trustee department of Lloyds will release promissory notes, and Lloyds will "purchase" these notes for the principal sums shown thereon. The trustee department will then pay the contractors and consulting engineers the amounts of their claims under the two contracts out of the proceeds of the "purchase". The value of the notes which Lloyds are obliged to purchase is limited in the manner specified in Appendix A. For example, unless Lloyds "otherwise" agree, they are only bound to purchase notes to the value of £2,000,000 during the first six months after the construction contract becomes operative; a further £3,000,000 during the succeeding six months, a further £4,000,000 during the succeeding six months, and so on till 36 months after the construction contract became operative, by which time notes to the total value of £14,750,000 may have been purchased. 5. The financial agreement provides that Lloyds will hold the notes until they fall due, on which dates they will be presented to the Hongkong and Shanghai Banking Corporation for payment. Appendix C gives details of the numbers of the notes, their value, and the dates of presentment. The first group of notes fall due for payment on 1st March 1973, and further groups fall due at six-monthly intervals thereafter, as follows :-
Therefore, if the construction contract did in fact become operative on 1st September 1969 and the construction of the tunnel were to be completed by 1st September 1972, Lloyds may well have advanced the full amount of £14,750,000 before any of the promissory notes fall due; and the last group of notes to the value of £800,000 would not fall due until 7 years after the construction of the tunnel has been completed. Clause 4 of the financial agreement reads :-
6. The letter (Appendix E) is a letter to be written by the appellants to the various contractors who are parties to the construction contract. It reads :-
In this letter the appellants appear to be saying, in effect, to the contractors :-
7. The letter (Appendix F) is a letter to be addressed by the appellants to Lloyds. It reads :-
8. One of the terms of the construction contract was that the contractors would obtain "the guarantee of an insurance company or bank" to be bound jointly and severally with the contractors to the appellants in the sum of HK$10,000,000 for the due performance of the construction contract. The only evidence before this court that Lloyds have agreed to be bound jointly with the contractors to the appellants is a statement in the contractors' tender addressed to the appellants in which they say that Lloyds have "indicated their willingness" to act as surety for the due performance of the construction contract. 9. What the appellants appear to be saying to Lloyds in this letter (Appendix F) is :
10. Clause 1 of the guarantee (Appendix G) reads :-
Appendix G states that the guarantors shall guarantee payment on all notes purchased by Lloyds in the following proportions :-
11. The promissory notes were issued and deposited with Lloyds on 24th July 1969. The documents referred to in Appendices D, E and F were executed on 11th August 1969; and the guarantees referred to in Appendix G were executed by the subscribers on 17th July 1969. 12. Clause 10(1) provides that the appellants "will appoint" The Hongkong & Shanghai Bank (Trustee) Ltd. to hold a trust fund; and clause 10 (2) states that the appellants "agrees with Lloyds" to make various payments into this fund out of "surplus revenue". The payments into the Fund are not to commence until the tunnel has been constructed and has been certified fit for use by the Director of Public Works; and "surplus revenue" is defined as :-
13. Clause 16(1) of the financial agreement enumerates some 12 "events of default". These include :-
But there are a number of other events of default which do not involve the failure by the appellants to honour the notes when they fall due. 14. If an event of default occurs, Lloyds may send a notice to the appellants; and clause 16(3) reads :-
15. The debenture referred to in the financial agreement was executed on 11th August, 1969. It commences thus:
The debenture recites that:
Clauses 1 and 2 read :-
16. Clause 7 states that the debenture is issued subject to and "with the benefit of" a number of "conditions" endorsed on the debenture and which are deemed to be part of it. The first "condition" is that the appellants may not, without Lloyds' consent, create any charge on their property and assets to rank "in priority to or pari passu with the charge hereby created". The second "condition" reads as follows :-
The third "condition" is to the effect that "after the principal moneys hereby secured become payable" Lloyds may appoint a receiver or manager of the property and assets of the appellants charged by the debenture. 17. The appellants sought the opinion of the Collector under s.17 of the Stamp Ordinance as to the duty chargeable on the debenture. The Collector assessed the stamp duty under Head 37(1) of the Schedule. Taking the Hong Kong dollar equivalent of £14,750,000 to be $214,612,500 (i.e. $14.55 as being equivalent to £1 sterling), at 20 cents per $100, the Collector assessed the stamp duty at $429,225. The appellants have paid this sum; but, being dissatisfied with the assessment, they now appeal by way of case stated to this court. 18. The grounds of appeal are :
19. Mr. Litton's submission on behalf of the appellants may be summarised thus :-
Mr. Litton relied heavily on the decision of the House of Lords in I.R.C. v. Ansbacher & Co. (1) 20. Mr. Thistlethwaite's submissions on behalf of the respondent may be summarised thus:-
21. In the event of the court holding against him on his main submission, Mr. Thistlethwaite's alternative submission was this :-
22. The financial agreement is not under seal; and we were informed that it has been stamped under Head 3 as an agreement under hand with a $3 stamp. In England, the stamp duty on such an agreement is 6d. It is not known where the promissory notes were stamped. In England since 1961 a promissory note only requires to be stamped with a 2d. stamp. Therefore, the cost of stamping 700 promissory notes would be rather less than £6. In Hong Kong, promissory notes fall under Head 11 of the Schedule (25 cents for every $1,000). Taking $214,612,500 as being equivalent to £14,750,000, 23. Nor did the appellants, by the mere execution of the financial agreement, undertake to repay any sums which Lloyds might advance. There is no clause to that effect. The appellants' obligations to repay arose under the promissory notes. Upon signing each note, the appellants undertook that they would pay the sum promised when the note would be presented on due date. In regard to any particular promissory note, if the appellants were to fail to honour their obligation to pay upon presentment on due date, Lloyds' cause of action would arise upon that note. 24. However, the question of Lloyds suing on any individual promissory note is never likely to arise. If the construction contract became operative on 1st September 1969 and (allowing for a reasonable extension of time) the tunnel shall be constructed, say, during the early part of 1973, Lloyds may well, by then, have purchased all the appellants' promissory notes. If the appellants should fail to honour their obligations when the first group of promissory notes (valued at £1,155,000) are presented for payment. on 1st March 1973, upon receipt of a written demand such as is referred to in clause 16(3) of the financial agreement, the principal amounts of all other notes purchased by Lloyds, (the total value of which might amount to £13,595,000) shall also become due for payment. In other words, the due dates as enumerated in Schedule C, extending over the period March 1973/ September 1979, shall be advanced to, say, 15th March 1973. Lloyds would then be in a position to sue on all the promissory notes which they have purchased. In doing so, they would have to plead clause 16 of the financial agreement. In a sense, their cause of action would rest upon both the notes and clause 16; but they could not possibly sue on the financial agreement alone. It is the notes on which they would sue, the due dates of many of the notes having been advanced by virtue of the operation of clause 16. 25. In such a contingency as is described above, Lloyds would also be in a position to sue the subscribers under their guarantees for the full value of all notes purchased; the subscribers' obligations would arise upon the appellants' failure to pay the amounts due on the notes, although Lloyds would be compelled to plead clause 16 of the financial agreement; but, again, Lloyds could not sue no clause 16 of the agreement. Their cause of action against the guarantors would arise upon the appellants' failure to pay the principal value of the notes, the due dates of a number having been advanced by operation of clause 16. 26. As regards the debenture, the appellants' covenant to pay is in respect of notes which have actually been purchased by Lloyds. Under clause 1(a) this covenant is in respect of principal moneys which may extend to £14,750,000 "which may be or become payable to (Lloyds) under or by virtue of the .......... notes". However, under clause 7, the debenture is declared to be "with the benefit of the conditions" endorsed upon it. Lloyds clearly is the party benefitting from those conditions; and condition 2(a) states in the clearest possible language that the "principal moneys hereby secured" (i.e. in the words of clause 2, "all amounts which may be or become payable to (Lloyds) under or by virtue of the notes") shall immediately become payable on demand by Lloyds if the appellants make default in payment of any monies which by the terms of the debenture are expressed to be payable by the appellants. The monies which, by the terms of the debenture are expressed to be payable by the appellants, are the principal moneys which may be or become payable to Lloyds under the promissory notes purchased by them; and condition 2(a) states that if the appellants make default in payment of any of such monies, then the "principal moneys hereby secured", (i.e. "all amounts which may be or become payable to (Lloyds) under or by virtue of the said notes") shall immediately become payable on demand by Lloyds. 27. Condition 2 envisages three other sets of circumstances any one of which would result in all the principal monies becoming immediately payable on demand by Lloyds. Condition 2(b) appears to incorporate into the debenture the 12 events of default enumerated in clause 16 of the financial agreement in as full a sense as if those 12 events had been enumerated seriatim in condition 2(b). Under the debenture there is no necessity for any "written notice" or "written demand" such as are mentioned in sub - clauses (2) and (3) of clause 16 of the financial agreement. The principal moneys immediately become payable on the occurrence of any one of the 12 events of default. Upon such an occurrence, Lloyds are entitled to sue on the debenture, pleading condition 2(b) which incorporates by reference the 12 events of default in clause 16 of the financial agreement and makes them part of the debenture itself. 28. That being so, under the debenture the principal moneys on the promissory notes may immediately become payable for reasons other than the fact that the appellants may fail to honour any particular group of promissory notes when presented for payment on due date. For example, the principal moneys on all the notes would immediately become payable if the appellants, without the consent of Lloyds, were to charge their assets for the benefit of any creditor, or if a notice under s. 51(1) of the Cross Harbour Tunnel Ordinance Cap. 203 has been served on the appellants. 29. I do not agree with the respondent's submission that the appellants are liable on the debenture quite independently and irrespective of their liability on the promissory notes. In a sense, it is true to say (as Mr. Thistlethwaite submitted) that the debenture "creates an obligation on the part of the appellants to pay before any money is due on the notes themselves." In a sense, so does clause 16 of the financial agreement. But, without the promissory notes no liability of any kind could arise. The notes are the core of the whole scheme. In my view, therefore, the debenture can not be said to be the primary security. The promissory notes are the primary security. And, although it is perhaps putting too low a value on the financial agreement to describe it as nothing but a "master plan", from Lloyds' point of view, it is in no sense of the term a security of any kind for the repayment of money advanced. 30. In my view, the debenture is unquestionably the principal security. Upon any act of default (as defined in clause 16 of the financial agreement,) or in any other set of circumstances which fall within the ambit of the "conditions" in the debenture, the moneys secured by the debenture (i.e. "all amounts which may be or become payable .......... under or by virtue of the .......... notes") immediately become payable; and thereafter a receiver may be appointed under condition 3. The floating charge crystallises and attaches to all the property and assets of the appellants, including their uncalled capital; and Lloyds will have priority over other creditors of the appellants whether secured or unsecured. 31. I agree with the Collector that the debenture is chargeable with Stamp Duty under Head 37(1); and I would myself dismiss this appeal.
Representation: Mr. Henry Litton, Q.C. (Messrs. Johnson, Stokes & Master & Co.) for Appellants. Mr. E. Thistlethwaite, Crown Counsel, for Respondent. (1) (1963) A.C. p.191 (2) (1899) 1 Q.B. p.250 |