Harbour Centre Development Ltd v Collector Of Stamp Revenue

CourtDistrict Court (Hong Kong)
Judgment Date30 December 1968
Subject MatterStamp Duty Appeal
Judgement NumberDCSA2/1968






Between :
Harbour Centre Development Limited Appellants


Collector of Stamp Revenue Respondent


Coram: A.M. McMullin, D.J. in Court.

Date of Judgment: 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, 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...

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