IN THE SUPREME COURT OF HONG KONG
STAMP APPEAL NO. 1 OF 1968
|WORLD MAGNATE SHIPPING LIMITED
|THE COLLECTOR OF STAMP REVENUE
Coram: Hogan C.J., Rigby J. and Morley-John J.
Date of Judgment: 3 February 1969
The facts of this case and the manner in which it reaches the Full Court are set out in the judgment of Rigby J. and I would not propose to repeat them.
1. Counsel for the appellant placed the main weight of his argument against the assessment on the ground that the 'Deed of Covenants' was not a bond as generally understood and consequently not assessable under Head 14 of the Schedule to the Stamp Ordinance.
2. He referred to the definition or description of a bond in Halsbury's Laws of England(1) which says:-
"A bond is an instrument under seal, usually a deed poll, whereby one person binds himself to another for the payment of a specified sum of money either immediately or at a fixed future date.".
3. The deed under discussion did not correspond to that description, counsel said, because (a) it did not promise to pay a sum certain, (b) it was primarily concerned with matters ancillary to the mortgage of the ship, such as the maintenance of the ship, application of insurance monies, etc., and (c) it was executed by other parties in addition to the obligor.
4. He referred us to Loggins v. Titheton(2) for the proposition that the sum must be certain and to Butterworth's Encyclopaedia of Forms and Precedents(3) p.479 ct seq., for the proposition that a bond is usually given by one party only in contrast with a covenant which is generally contained in an inter partes deed. The commentary also states that the differences between them are formal although in a covenant the obligation intended to be performed is normally stated directly whilst in a bond it is usually stated in the conditions. Counsel stressed that in the numerous precedents beginning at p.491 none was to be executed by more than one side.
5. For the purpose of indicating the limits on interest recoverable under a bond, counsel referred to the cases of Hogan v. Page(4), In re Dixon(5), Foster v. Weston(6) and Walters v. Meredith(7). To these, counsel for the respondent added Hughes v. Wynne(8). It seems to me however that these cases afford little assistance on the issue before us as they turn rather on whether the intent of the parties was to make interest payable, whether it is recoverable as damages and whether the principal and interest can exceed the amount of the penalty. They certainly do not indicate that a bond cannot include a promise to pay interest. Barough v. White(9) shows that a promissory note could do so at common law.
6. In the present instance, the parties were not satisfied with the statutory ship's mortgage and, presumably because of the limitations as to form and content prescribed by statute (the United Kingdom Merchant Shipping Acts 1894-1960), they decided to execute this additional instrument on the same day as the statutory mortgage. It included not only a number of subsidiary or ancillary matters relating to the maintenance and protection of the ship, the subject of the mortgage, but also set out at considerable length additional promises and obligations required by the mortgagee for the purpose of under-pinning or strengthening the obligations flowing from the statutory mortgage. They included a series of promissory notes executed by the mortgagor to cover the instalments by which the principal was repayable. The payment of these notes was guaranteed by Mr. John L. Marden and World Wide (Shipping), Ltd. Four of the promissory notes were in addition guaranteed by the Hong Kong and Shanghai Banking Corporation. These guarantees are set out in separate letters but the agreement to provide these guarantees and the letters themselves are all set out in the Deed of Covenants.
7. The Deed contained the following recital:
"6. The Shipowner, in order to secure the payment of said indebtedness and of the Notes and interest thereon, together with such other sums as may become due and payable under this Deed, and the performance and observance of and compliance with all the covenants, terms and conditions in the Notes and in this Deed contained, expressed or implied, has agreed to and duly authorized the execution and delivery of this Deed and a First Preferred Statutory Ship Mortgage over the Vessel in accordance with the Merchant Shipping Ordinance, 1953, of Hong Kong and the Merchant Shipping Act, 1894, as amended, and such First Preferred Statutory Ship Mortgage (herein-after called the 'Mortgage') has been duly executed by the Shipowner in favour of the Mortgage concurrently with the execution of this Deed.".
It went on to say at a later point:
|The Shipowner covenants and agrees with the Mortgagee as follows:-
|1. The Shipowner will observe, perform and comply with each and every one of the covenants, terms and conditions herein, expressed or implied, and on its part to be observed, performed or complied with.".
The covenants, terms, etc. included an obligation to pay, inter alia, a fixed or prescribed sum of money. Consequently, it seems to me the Deed did contain a promise by the shipowner to pay a sum certain in money and that this promise under seal is, for the purpose of the Stamp Ordinance, a bond. The Deed also contained many other things, including covenants by the mortgagees or shipbuilders but I think these are immaterial. Stamp duty cannot be avoided merely by including additional matter in the same instrument. See Monroe's Stamp Duties(10) and section 9(1) of the Stamp Ordinance which reads as follows:
"9.(1) An instrument containing or relating to several distinct matters shall be separately and distinctly charged, as if it were a separate instrument, with duty in respect of each of the matters.".
The additional provisions do not prevent the document executed by the shipowner or obligor from being a bond on its part for the purposes of the Stamp Ordinance and, consequently, a promise which, unless there is some other reason for exemption, attracts an obligation for payment of stamp duty under Head 14.
8. The next argument advanced by counsel for the appellant seems to me to present greater difficulties for the respondent. It rested on section 40(4)(a) of the Stamp Ordinance, which reads as follows:-
||all instruments for the sale, transfer or other disposition, either absolutely or by way of mortgage or otherwise, of any vessel, or of any part interest, share or property of or in any vessel, shall be wholly exempt from duty;".
9. The argument is that since the mortgage of the ship is exempt from duty then a document which merely provides for matters ancillary and incidental to that mortgage is covered by the exemption.
10. In support of this contention counsel for the appellant referred to Limmer Asphalte Paving Co., Ltd. v. Commissioners of Inland Revenue(11) where Martin, B., delivering the judgment of the court on an earlier statute, said:
"There is no better established rule as regards stamp duty than that all that is required is, that the instrument should be stamped for its leading and principal object, and that this stamp covers everything accessory to this object.".
11. During the course of the argument, reference was also made to the pronouncement by Finlay, J. in Prudential Assurance Co. v. Inland Revenue Commissioners(12):
"....... the rule which must never be forgotten - namely, that under the Stamp Act one stamps, not transactions or anything of that sort, but one stamps instruments.".
This passage has been very widely quoted but I must confess to some reservations about part of it. One can, of course, say that it is instruments that are stamped, in the sense that unless there is an instrument then there is nothing to stamp, but whether the instrument in question should attract stamp duty or not depends on the transaction contained in it. Consequently, it is the transaction which determines whether stamp duty is payable and what the amount will be.
12. The Crown, however, was also disposed to rely on the dictum of Finlay, J. and to say that as there are two separate and distinct instruments here, the statutory mortgage and the Deed of Covenants, only the mortgage attracts the exemption and the Deed, a separate and distinct instrument, cannot benefit from that exemption.
13. Whilst I find unattractive the argument based merely on the existence of two separate physical objects, the statutory exemption is drawn in narrow terms and and is confined to the sale, transfer or other disposition of the ship. The question whether that expression "sale, transfer or other disposition" is confined merely to the disposal of the ship and inapt to cover any additional matter is certainly high lighted when, as in the present case, there is a separate and distinct instrument embodying not only a freshly stated promise to pay, made under seal, but the same instrument provides for additional guarantees and promises in the shape of promissory notes and two separate letters of guarantee by other...