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Arrowtown Assets Ltd v The Collector Of Stamp Revenue

Judgment Cited authorities 13 Cited in Precedent Map Related
Vincent
Judgment Date17 March 2003
Year2003
Citation[2003] 1 HKLRD 684
Judgement NumberCACV118/2002
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV000118/2002 ARROWTOWN ASSETS LTD v. THE COLLECTOR OF STAMP REVENUE

CACV000118/2002

CACV 118/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 118 OF 2002

(ON APPEAL FROM DCSA 52 OF 2000)

________________________________

BETWEEN
ARROWTOWN ASSETS LIMITED Appellant
AND
THE COLLECTOR OF STAMP REVENUE Respondent

________________________________

Coram: Hon Cheung JA, Hon Ma JA and Hon Chung J in Court

Dates of Hearing: 3, 4 and 5 December 2002

Date of Judgment: 17 March 2003

________________________________

J U D G M E N T

________________________________

Hon. Cheung J.A. :

Surrender and regrant of land

1. Shiu Wing Steel Limited ("Shiu Wing") was the registered owner of a piece of land in Junk Bay, Kowloon. The land was known as Lot No. 1066 in S.D. 3, Extension to Lot No. 1066 in S.D. 3 and Extension to Lot No. 1066 and Extension thereto in S.D. 3 ("the properties"), having a total area of approximately 539,790 square feet.

2. By the end of 1996, Shiu Wing reached an agreement with the Government for the surrender of the properties and the regrant of a piece of land to be known as Tseung Kwan O Town Lot No. 55 having an area of approximately 50,145.40 square metres (the "Development Land"). The Development Land was to be developed for non-industrial purposes as part of the plan to develop Tseung Kwun O into a new town. Shiu Wing had to pay a premium of $5,853,000,000 to the Government in order to obtain the Development Land.

Heads of Agreement

3. Two property developers, namely, the Sun Hung Kai Properties group and Swire group were interested in participating in the development of the Development Land. Shiu Wing then entered into an agreement with these parties. The terms of the agreement were contained in a Heads of Agreement dated 3rd January 1997 ("Heads of Agreement") which was signed between Shiu Wing, New Town (N.T.) Properties Limited ("New Town") (a company within the Sun Hung Kai Properties group), Swire Properties Limited ("Swire"), and Calm Seas Developments Limited ("Calm Seas"). Calm Seas was a vehicle of New Town and Swire.

4. The scheme under the Heads of Agreement was for Shiu Wing to transfer the Development Land to one of its subsidiary companies. The subsidiary company would pay the sum of $12,714,856,874 to Shiu Wing for the transfer of the Development Land (the "Initial Consideration"). It would also pay Shiu Wing 12% of the Surplus Proceeds arising from the redevelopment project of the Development Land (the "Deferred Consideration").

5. Calm Seas would buy 98% of the entire share capital of this subsidiary company for $12,460,559,737. This money was to be paid to Shiu Wing by Calm Seas in the following manner :

i) $1,869,083,960 would be paid as deposit and part payment for the purchase of the shares ("the initial deposit").

ii) $5,853,000,000 would be paid as deposit and part payment for the purchase of the shares ("the further deposit"). Shiu Wing would use this money to pay the premium required for the re-grant of the Development Land.

iii) $4,738,475,777 being the balance of the purchase price of the shares.

6. The completion of the sale and purchase of the shares was conditional upon the Development Land being assigned to the subsidiary company immediately following the land exchange between Shiu Wing and the Government.

7. New Town and Swire signed the Heads of Agreement as guarantors each guaranteeing to Shiu Wing the due and punctual payment of 50% of all monies payable by Calm Seas under the Heads of Agreement and the due performance of 50% of Calm Seas' obligations under the Heads of Agreement up to and including completion but not thereafter.

8. The Heads of Agreement also provided that the parties would use their respective best endeavours to agree and co-operate with each other to formulate optimum structures so as to minimise the liability for stamp duty on the transfer of the shares, the assignment of the Development Land and any profits tax which might be payable as a result of the development, and in particular Shiu Wing should agree to such structures as might be advised by Calm Seas' tax advisers to structure the subsidiary company (the shares of which were to be sold) as an associated company of Shiu Wing within the meaning of section 45 of the Stamp Duty Ordinance Cap. 117 ("the Ordinance") by the holding of non-voting and non-participating deferred shares in the subsidiary company, and to the application for relief from ad valorem stamp duty under section 45 (Clause 8).

9. The Heads of Agreement also provided that the parties should use their respective best endeavours to conclude a further agreement which should contain modifications to the structure contained in the agreement to reflect optimum tax structures (Clauses 7.1 and 7.2(B)).

10. Under the Heads of Agreement the stamp duty for the assignment of the Development Land would be borne by the subsidiary company but those related to the transfer of shares would be borne by Calm Seas.

Formation of subsidiary companies

11. The initial deposit was paid by Calm Seas to Shiu Wing. Four subsidiary companies were formed by Shiu Wing, namely Eastview Holdings Limtied ("Eastview"), Super Charge Development Limited ("Super Charge"), Prepared Holdings Limited ("Prepared"), and Arrowtown Assets Limited ("Arrowtown"), the Appellant in this appeal, each holding 100% of the issued share capital of the next one, with Shiu Wing as the parent company at the one end and Arrowtown as the ultimate subsidiary company at the other.

Share Sale Agreement

12. A Sale and Purchase Agreement dated 7th April 1997 (the "Share Sale Agreement") was eventually entered into by Shiu Wing, Calm Seas, New Town and Swire to replace the Heads of Agreement. The Share Sale Agreement basically followed but also modified the agreement reached in the Heads of Agreement.

13. The Share Sale Agreement recited, among other things, about the land exchange and that Shiu Wing had incorporated the four subsidiary companies.

14. Clause 3 provided that Shiu Wing shall procure the sale of 980 'A' ordinary shares of Prepared (the "Sale Shares") by Super Charge in favour of Calm Seas for the consideration of HK$12,460,559,737. The initial deposit of $1,869,083,960 was to be paid to Shiu Wing (on the account of Super Charge). This was treated as paid. The further deposit of $5,853,000,000 was to be paid to Shiu Wing's solicitors by way of a cashier order payable to the Government. Shiu Wing's solicitors undertook to apply this sum for the payment of the land premium. The balance of $4,738,475,777 was to be paid to Super Charge.

The conditions

15. Under Clause 5.1, completion of the Share Sale Agreement was to be conditional upon,

1) the assignment of the Development Land by Shiu Wing to Arrowtown, the ultimate subsidiary company for $12,714,856,874 together with the Deferred Consideration.

2) a reorganization being effected in accordance with Schedule 3 prior to the Land Exchange i.e. the surrender of the properties by Shiu Wing to the Government and the regrant by the Government to Shiu Wing of the Development Land.

The reorganization

16. The reorganization involved, among other things, the following :

1) the reorganization of Super Charge and its immediate subsidiary company, Prepared. Prepared, whose authorized share capital had one class of shares, would now have two classes of shares. The authorized share capital would become HK$1,010 divided into 1,000 'A' shares of HK$0.01 each and 100,000 non-voting and non-participating deferred 'B' shares of HK$0.01 each, and its issued share capital would change from 1 share of US$1 per share to 1,000 'A' shares and 100,000 'B' shares (all of HK$0.01 each), all to be owned beneficially by Super Charge.

2) Simultaneous with the assignment of the Development Land by Shiu Wing to Arrowtown,

a) Shiu Wing should enter into a loan agreement with Arrowtown in which Shiu Wing agreed that the Initial Consideration of $12,714,856,874 by Arrowtown to Shiu Wing, was to be left outstanding as a debt due to Shiu Wing ("the Loan").

b) Shiu Wing should assign the Loan to its immediate subsidiary company Eastview in consideration for the issue of shares in Eastview. Shiu Wing should procure Eastview to likewise assign the Loan to its immediate subsidiary company Super Charge in consideration for the allotment of 999 ordinary shares in Super Charge. Shiu Wing should then procure Super Charge to assign the Loan to its immediate subsidiary company Prepared in consideration for the issue of 999 'A' shares and 100,000 'B' shares in Prepared, so that Super Charge would become the owner of a total of 1,000 'A' shares and 100,000 'B' shares in Prepared, out of which 980 'A' shares would be sold to Calm Seas upon completion as aforesaid.

17. The Loan Note was to stay with Prepared.

The documents to be delivered

18. Under Clause 5.3, upon completion of the sale of the Sale Shares Shiu Wing had to deliver to Calm Seas, among other things, the following documents :

1) an agreement executed by Shiu Wing and Arrowtown for the payment of the Deferred Consideration ("the DC Agreement"), the terms of which were contained in a schedule to the Share Sale Agreement.

2) a Shareholders Deed between Shiu Wing, Super Charge, Calm Seas, New Town and Swire, a draft of which was annexed to the Share Sale Agreement.

Other terms

19. Under the Share Sale Agreement, Calm Seas agreed that it would co-operate in completing the development of the Development Land through Arrowtown.

20. The Share Sale Agreement provided that all stamp duties payable in respect of the assignment of the Development Land should be borne by Arrowtown and those in respect of the transfer of the...

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