Far Wast Consortium Ltd and Another v. Attorney General

HCMP001593/1983

STAMP DUTY - sale and sub-sale of shares - whether stamp duty is chargeable on agreements executed between original purchasers and sub-purchasers - meaning of "property" - Stamp Ordinance (Cap. 117) sections 30(1) and 36(4)

By a Sale Agreement in writing, the owners of shares in a limited company agreed to sell the shares to F. Ltd. On the same day F. Ltd. executed a Sub-Sale Agreement whereby it agreed to sell the same shares to O. Ltd., which executed a Second Sub-Sale Agreement whereby it agreed to sell the same shares to O. Ltd. Completion of the various agreements was effected by instruments of transfer executed by the original vendors in favour of O. Ltd. and its nominee (the ultimate purchasers). Bought and "sold Notes were executed and duly stamped by the original vendors and the ultimate purchasers.

IN THE HIGH COURT OF JUSTICE

MISCELLANEOUS PROCEEDINGS

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BETWEEN

Coram: His Honour Judge Downey, sitting as a Deputy Judge of the High Court

Date: 23rd November, 1983

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JUDGMENT

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1. By an Originating Summons, dated the 15th July 1983, the above-named plaintiffs seek the determination of a number of questions, which arise from certain written agreements for the sale and purchase of certain shares, and which turn upon the true construction of sections 30(1) and 36(4) of the Stamp Ordinance (Cape 117). The facts are not in dispute and, having regard to concessions made by counsel for the plaintiffs and the Collector of Stamp Revenue, the only question of law requiring my determination is whether the relieving provisions of section 36(4) extend to all forms of property and, in particular, to dealings in shares.

2. It is common ground that the provisions of the current edition of Cap. 117, which carne into force on the 1st July 1981, have no application to the questions now before me. Whether the instruments in question give rise to a liability to stamp duty depends upon the true construction of the provisions of Cap. 117 in force in January and February 1981. These provisions are to be found in the 1978 edition of the Ordinance. The statute now in force makes it absolutely clear that the relief against liability to "double-duty", to which the plaintiffs claim to be entitled in this case, only applies to instruments relating to transactions in respect of immovable property. However, Mr. Fung placed some reliance on this latest amendment of the statute as an indication that the legislature had acknowledged that earlier expressions of its intention were defective, imperfect, or ambiguous, in order to reinforce his basic argument that the relieving provisions of section 36(4) applied to all forms of property, including shares. It was Mr. Barlow's contention that the latest provisions merely made abundantly clear what was already clear from the true construction of earlier enactments of Cap. 117, ranging from the original Ordinance (No. 8 of 1921) to the 1978 edition thereof, namely that the section did not apply to dealings in shares.

3. I will now attempt to summarise the facts which have led up to the legal issues before me. On the 22nd January 1981, several written agreements, relating to the sale and purchase of the entire issued share-capital of Jadial Estates Limited ("Jadial"), were entered, into by various limited companies. On the same date various other agreements were made between these and other companies, ostensibly for the purpose of evidencing, or providing for, the payment for the transfer of the shares in Jadial from the original vendors to the ultimate purchaser. The original vendors were Carrian Realty Ltd and Plessey Investments Ltd., who entered into an agreement ("the Sale Agreement") to sell 9,827,000 shares in Jadial to Far East Consortium Limited ("Far East") for the purchase price of $13,418,864.35 By another written agreement ("the Sub-Sale Agreement") Far East agreed to sell the same shares for the same consideration to Madison Securities limited ("Madison") By a further written agreement ("the Second Sub-Sale Agreement") Madison agreed to sell the same shares for the same consideration to Overseas Union Realty Limited ("Overseas Union"), which company was the ultimate purchaser.

4. Completion, in accordance with the terms of these various agreements, took place on the 25th February 1981, when Bought and Sold Notes, and Instruments of Transfer were executed by the original vendors, the ultimate purchaser, and Descona Limited, a nominee of the, ultimate purchaser. These documents or instruments were duly stamped.

5. On the 22nd January 1981, four other agreements in writing were executed by the companies already mentioned, as well as Perak Pioneer Limited, Carrian Holdings Limited and Carrian Investments limited. These, and the sale and purchase agreements already referred to, were apparently executed on the same day at the offices of the solicitors representing the plaintiffs in the present proceedings. Although it would seem reasonable to infer that these various agreements were executed pursuant to some firm prior agreements or arrangements between the various companies, it is conceded by Mr. Barlow, on behalf of the Collector, that all of these agreements were executed in the order or sequence which appears from the terms and expressions used in the various agreements.

6. The ultimate effect of these various transactions or agreements resulted in the transfer of the Jadial shares from the original vendors to the ultimate purchaser and its nominee, without any step being taken by the intermediate parties, i.e. Far East and Madison, other than their entering into the other agreements regulating the manner in which payment for the acquisition of the Jadial shares was made, or deemed to have been made.

7. There is a considerable degree of artificiality surrounding the execution of all these agreements, and in the language employed therein. If the object of the exercise, which occurred on the 21st January, was simply to transfer the Jadial shares from the original vendors to the ultimate purchasers, this could have been achieved by the execution of one document and, perhaps, subsequent documents to perfect the transaction. But, although the Sale Agreement, the Sub-Sale Agreement, and the Second Sub-Sale Agreement contain acknowledgments that the respective purchasers of the Jadial share had already paid the agreed price, these agreements, and the other agreements entered into between other parties on the same day, suggest that payment for the Jadial shares was to be made by means of an overall settlement of account between the various companies mentioned in these and the other agreements. It would also seem that part of the consideration for the purchase of the Jadial shares by Madison from Far East was the "sale" of 10,000,000 shares in Overseas Union to Far East

8. I have not been acquainted with the reasons for these complicated and intricate transactions. Presumably there were sound reasons for embarking on this elaborate exercise. But, I do not consider that it is necessary for me to know the reasons for this exercise, because it is trite law that stamp duty is a form of taxation levied upon instruments, and not upon transactions. Assuming, as I do, that execution of these various written agreements was necessary, in order to carry out the intentions of the various parties, my only concern is whether their execution gave rise to a liability to pay stamp duty as a result of the true construction of the legislation in force at the material time.

9. On behalf of the plaintiffs, Mr. Fung conceded that execution of the Sale Agreement, the Sub-Sale Agreement, and the Second Sub-Sale Agreement, prima facie gave rise to charges to stamp duty, because of section 30(l) of Cap. 117, which is in the following terms:-

However, Mr. Fung contended that the plaintiffs were relieved from the statutory duty of executing and duly stamping contract notes under this provision by the general provision contained in section 36(4) of Cap. 117, which is in the following terms:-

"Where a person having contracted for the purchase of any property but not having obtained a conveyance thereof contracts to sell the same to any other person and the property is in consequence conveyed immediately to the sub-purchaser, the conveyance is to be charged with ad valorem duty in respect of the consideration moving from the sub-purchaser."

10. In further support of his contention that this admittedly relieving provision extends to dealings in shares, Mr. Fung relied upon the wide definition of "property" in section 2(1) of the Interpretation and General Clauses ordinance (Cap. 1), the absence of any definition of "property" or "conveyance" in Cap. 1l7, and the fact that, in contrast to the generality of section 36(4), other provisions of Cap.117 expressly or specifically confine the expressions "property" and/or "conveyance" to conveyances of immovable property. (of. sections 6A, 12A, 12B, 34(1) & (2), 37(1), 40(4) and 40A(3).). He also relied on the fact that section 36(4) is expressed in the same terms as section 58(4) of the Stamp Act 1891, and certain passages in reported English oases (i.e. Escoigne Properties Ltd., I.R.C. [1958] A.C. 549, at 563; Fitch Lovell Ltd. v. I.R.C. [1962] 1 W.L.R. 1325, at 1341) which, though obiter, support his submission that the relieving provisions of section 58(4) of the Stamp Act 1891 extend to all forms of property and, in particular, to shares.

11. In my approach to the construction of these provisions of Cap. 117, I have borne in mind the following generally accepted principles: any doubt concerning the legislature's intention to impose a liability upon the subject should be resolved in favour of the subject; provisions designed to relieve the subject from a prima facie liability to the Crown should generally receive a liberal construction; the intention of the legislature is not to be ascertained by a process akin to speculation; and, this process should not be stretched to meet a situation for which provision has not been clearly made by express words or necessary intendment.

12. It is obvious that many of the provisions of Cap. 117 have been borrowed or copied from the Stamp Act 1891, and later enactments. These models are not renowned for their clarity and like some wines, do not perhaps travel well to distant and different places. Some of the provisions of Cap. 117 have been borrowed literally; others have been imported with modifications. Section 36(4) of Cap. 117 is a precise copy of section 58(4) of the Stamp Act. 1891. Section 30(1) of Cap 117 is a modified version of section 78 of the Finance (1909-10) Act 1910, which appears to confine the duty to execute and stamp contract notes to brokers, agents, and persons, whose business is that of dealing in shares or marketable securities. By, contrast, section 30(1) of Cap. 117 the appears, to impose-the statutory duty of making and stamping contract notes upon any person who effects any sale or purchase of shares. Furthermore, on the only occasion when section 58(4) of the Stamp Act 1891 has been really considered by an English court in the context of dealings in shares (i.e., Fitch Lovell Ltd. v. I.R.C. [1962] 1 W.L.R. 1325), it would appear that the assumption that the. section extended to shares was based on, or strongly influenced by, the very wide and general definition of "conveyance on sale" contained in section 54 of the Stamp Act 1891, which applies to "any property, or any estate or interest in any property ...". Section 3 of Cap. 117, on the other hand, is expressed in narrower terms. It does not extend to vessels or shares. That exclusion has existed for at least 60 years. (cf. section 3(9) of Ord. No. 8 of 1921 and section 3 of the 1976 and 1978 edition of Cap. 117). In my view, these material differences in the relevant legislation suggest that little or no assistance is to be derived from the decided cases relied on by Mr. Fung.

13. I have taken careful note of Mr. Fung's submissions regarding the various provisions of Cap. 117 where the legislature has taken care to restrict their application, by express words, to instruments relating to immovable property. But, I do not find them particularly helpful. The express references to immovable property in these provisions are, in my view, merely there to identify, and deal with, problems which are peculiar to, or can only arise in connexion with, immovable property. The use of these express words or provisions is not, in my view, a clear indication of the legislature's intention that "property" when used in section 36(4) extends to all forms of property including shares. Nor do I think that the definition of "property" in section 3 of the Interpretation and General Clauses Ordinance (Cap. 1), carries the matter any further. The provisions of Cap. 1 are always subject to a contrary intention appearing from the context of other ordinances. I have to consider whether the context of Cap. 117 indicates a contrary intention.

14. In support of his contention that a contrary intention is to be found in Cap. 117, Mr Barlow submitted that the word 'conveyance" in section 36(4) is really no more than an abbreviated reference to "conveyance on sale and, having regard to the definition of this expression in section 3 of Cap. 117, section 36(4) cannot apply to dealings in shares. Whilst I appreciate that there is considerable force in this submission, I am not wholly convinced that it is decisive of the matter now before me. If this were the intention of the legislature, it is not easy to understand why the simple noun "conveyance" has not been used in other sections of the ordinance, instead of the expression "conveyance on sale". I conceive that I should not assume that the draftsman has been guilty of inept or sloppy modes of expression, just as I should not surmise that he has simply forgotten to insert the word "immovable" before "property" in section 36. The subject is, in my view, entitled to expect precision of thought and expression on the part of the legislature, before he is exposed to liabilities and penalties. In England, this need for precision does not really arise because the definition of ''conveyance on sale" embraces all forms of property. In my view, the word "conveyance", in section 36(4), is intended to refer to any instrument which has the effect of conveying or transferring property from the original vendor to the ultimate purchaser. It is not necessarily confined to instruments affecting immovable property, and it does not obviously exclude transfers of shares.

15. In my view, section 36(4) is intended to apply to a situation where the mere execution (or creation) of one instrument - "the conveyance" - not only attracts a charge to ad valorem duty, as between the original vendor and the sub-purchaser, but also, and by the very same act, operates to impose an ad valorem charge upon the notional conveyance or transfer of the property from the original vendor to the immediate purchaser It does not, in my view, apply to a situation where a liability to pay ad valorem duty, in respect of the contract between the original vendor and the immediate purchaser, arises before or independently of the execution of the ultimate "conveyance" by the original vendor in favour of the sub-purchaser.

16. In view of Mr. Fung's concession that execution of the Sale Agreement, Sub-Sale Agreement, and Second Sub-Sale Agreement gave rise to a statutory duty, imposed by section 30(1) of Cap. 117, to make, execute and duly stamp contract notes, on the part of the parties to these agreements, I am of the view that the liability to ad valorem duty, payable on such contract notes; arose before that which clearly arose upon the subsequent execution of the ultimate and immediate "conveyance" from the original vendor to the ultimate purchasers. It did not arise solely because of the subsequent execution of the ultimate "conveyance" from the original vendors to the ultimate purchasers.

17. These conclusions are, in my view, reinforced by Mr. Barlow's secondary argument that section 36(4) of Cap. 117 does not apply to dealings in shares. He contends that section 36(4) has no application in This case, because the legislature has clearly established a separate machinery for transactions involving shares, in the form of section 30 of Cap. 117. The requirements imposed by that section simply do not fit in with the situation envisaged by section 36(4). The latter presupposes that the ultimate "conveyance" is one which attracts stamp duty on an ad valorem basis in any event. That is the case with respect to the completion of contracts for the sale of immovable property. The previous contracts, between original vendor and immediate purchaser, and between the purchaser and sub-purchaser, attract a nominal or fixed charge, or no charge at all. The ultimate conveyance from original vendor to sub-purchaser is chargeable on an ad valorem basis, and, but for the provisions of section 36(4), execution of that conveyance would give rise to an additional charge to ad valorem stamp duty, arising upon the consideration for the notional "contract or transfer on sale" between the original vendor and immediate purchaser. In the case of dealings in shares, the position is reversed. The previous contracts, in the form of the contract notes which must be executed, are chargeable with an ad valorem duty under Head 18A. The ultimate" Conveyance", in the form of an instrument of transfer is only chargeable with a fixed duty under Head 48(2). He further points out that the instrument of transferu cannot be endorsed by the Collector, in accordance with section 30(1)(c), unless ad valorem duty has been paid on the contract note. (Although section 30(10)(c) appears to contemplate the possibility of an endorsement to the effect that no duty is payable, this sub-section appears to deal with due stamping of the instrument of transfer, and not with the due stamping of a contract note.)

18. Although I was initially attracted by Mr. Fung's submissions, because they appeared to have the support of decided cases in England or were supported by general principles favourable to resolving any uncertainty in favour of the subject, I am satisfied that Mr. Barlow's submissions are not only sound and persuasive, but demonstrate that the legislature has clearly expressed a contrary intention, in the context of Cap. 117, to the wide meaning of "property" which would otherwise apply by virtue of the provisions of Cap. l.

19. For the aforesaid reasons, I am of the opinion that the questions posed by paragraphs (1) (2) (3) and (4) of the Originating Summons must be answered in favour of the Respondent. In other words, stamp duty on an ad valorem basis is, in my view, payable, in accordance with section 30(1) of Cap. 117, in respect of the sale and purchase of the shares of Jadial pursuant to the Sale Agreement, the Sub-Sale Agreement, and the Second Sub-Sale Agreement. I am not concerned with assessing the amount of the duty payable, or determining by whom it is payable, as was given to understand that these questions are not in dispute. Apart from answering the aforesaid questions posed by the Originating Summons in the manner I have indicated, I order the Plaintiffs to pay the Respondent's costs. The parties having assented to my delivering my reserved judgment in this case in accordance with the provisions of Order 42 Rule 5A of the Rules of the Supreme Court, which I now do, I would merely add that they should have liberty to apply for further directions, if they consider it is necessary to do so.

Representation:

Mr. Patrick Fung (counsel instructed by K.K. & Winston Chu & Co.) for Plaintiffs.

Mr. B.G.J. Barlow, Asst. Principal Crown Counsel for Defendant.