Kuok (Singapore) Ltd v Commissioner of Stamp Duties

[1] The appellant Kuok (Singapore) Limited (“KSL”) set up Hovert Investments Pte Ltd (“Hovert”) as a wholly owned subsidiary to acquire all the shares in Pacific Carriers Limited (“Pacific Carriers”) which was a de-listed company in order to delist Pacific Carriers. After Pacific Carriers was de-listed, Hovert was placed into members’ voluntary liquidation and Wong Kian Kok, Kon Yin Tong and Helen Hee Boe Hian were appointed its liquidators. This was on 20 September 2001.

[2] Hovert had assets of $2 cash and 305,626,000 shares in Pacific Carriers worth $409,538,840. However Hovert had a liability to KSL for a sum equal to the value of its shares in Pacific Carriers.

[3] By a letter dated 27 November 2001, one of the liquidators Wong Kian Kok wrote to KSL stating:

[4] By a letter dated 29 November 2001, KSL replied stating:

[5] The instrument of transfer stated that the transfer was:

[6] KSL then submitted the instrument of transfer to the respondent, the Commissioner of Stamp Duties, together with a cheque for $10 on the basis that the duty payable was $10 pursuant to Article 3(h) of the First Schedule to the Stamp Duties Act (Cap 312) (“the Act”).

[7] The Commissioner was of the view that the instrument of transfer should be stamped with ad valorem duty under Article 3(c) of the First Schedule to the Act based on a consideration of $409,538,840. The rate under Article 3(c) was 0.2%. This would have attracted stamp duty of over $800,000. However, with a 30% rebate as an off-budget measure, the duty was reduced to $573,354.45.

[8] KSL disagreed that Article 3(c) should apply and submitted the matter for adjudication and assessment. The Commissioner assessed the duty to be $573,354.45.

[9] By a letter dated 14 August 2002, KSL objected to this assessment and applied for a review of the assessment. By a letter dated 31 August 2002, the Commissioner maintained his assessment.

[10] KSL then paid the duty, as assessed, as it was obliged to do under the Act, but remained dissatisfied with the assessment. It then appealed to the High Court by way of the present Originating Motion, requiring the Commissioner to state and sign a case which was then done.

[11] The principal question for determination is whether the instrument of transfer is chargeable with ad valorem stamp duty as a conveyance, assignment or transfer on sale of shares under Article 3(c) of the First Schedule of the Act or as a conveyance assignment or transfer of any property or any interest thereof not otherwise specifically charged with duty under Article 3(h) of the said First Schedule. I have already stated that the rate of stamp duty under Article 3(c) is 0.2%. With the 30% rebate mentioned above, the stamp duty is $573,354.45, if Article 3(c) applies. Under Article 3(h), the stamp duty is $10. With the same 30% rebate, it would be $7.

[12] Although the instrument of transfer states that the transfer is by way of distribution in specie, it was not disputed that the Commissioner and the court could have regard to the exchange of correspondence constituting the agreement which led to the execution of the instrument of transfer. It was also not disputed that in the exchange of correspondence between Mr Wong and KSL, which I have set out above, the shares were to be transferred to KSL in full and final settlement of KSL’s loan to Hovert.

[13] As there was also a dispute on the effect of s 17 of the Act, I will deal with s 17 first. Section 17 states:

[14] Mr Liu Hern Kuan, Counsel for the Commissioner, submitted that where a situation comes within s 17, it is implicit that ad valorem duty is payable. He relied on Ex parte Miller and Gray [1892] 18 VLR 31. In that case, Hood J gave his view on s 97 of the Stamps Act, which is in pari materia with our s 17. Mr Liu cited part of Hood J’s judgment at p 33:

[15] In my view, Mr Liu had cited the above passage out of context. I refer to Hood J’s judgment from p 32 to p 33 where he said:

[16] Quite clearly Hood J’s judgment militates, rather than supports, Mr Liu’s contention. This part of Hood J’s judgment was adopted by Fullager J in Comptroller of Stamps (Vic) v Rylaw Pty. Ltd 81 ATC 4,411 when Fullager was considering s 68(1) of the Stamps Act 1958 (Vic) which is in pari materia with our s 17.

[17] Furthermore, in Finance Corporation of Australia Ltd v Commissioner of Stamp Duties (Qld) 81 ATC 4,396, the Supreme Court of Queensland reached a similar conclusion on s 52 of the Stamps Act 1894-1976 which is also in pari materia with our s 17.

[18] So, at p 4,400, Campbell J said:

[19] At p 4,408, Macrossan J said:

[20] As Mr Nand Singh Gandhi, Counsel for KSL, observed, our s 17 does not even state the rate of duty payable.

[21] In my view, an instrument does not attract ad valorem stamp duty merely because it comes within s 17. Furthermore, s 17 does not give rise to a prima facie presumption that ad valorem stamp duty is payable. It is for the Commissioner to first establish that the instrument attracts ad valorem stamp duty under some other provision of the Act before s 17 may apply. Accordingly, for the case before me, the Commissioner still had to establish that the instrument in question was caught under Article 3(c) of the First Schedule.

[22] Articles 3(c) and (h) of the First Schedule state:

[23] It was not disputed that the transfer of shares from one party to pay off a debt owing to another party would constitute a transfer on sale of shares. However, Mr Gandhi submitted that the position was different in a situation where the transferor company was in liquidation and the transferee was its sole creditor and also its sole shareholder.

[24] In summary, Mr Gandhi submitted that in a liquidation:

I would add that Mr Liu did not dispute that if the transfer of the shares was really a distribution in specie instead of being in settlement of a debt, Article 3(c) would not apply.

[25] I come now to some of the cases which Mr Gandhi relied on.

[26] In Shaw Savill v IRC [1956] NZLR 211, the respondent had acquired all the shares in a company which was subsequently wound up voluntarily. All the debts of the company were paid by the liquidator and the respondent requested the liquidator to transfer the land owned by the company to it. The liquidator duly executed a memorandum of transfer. The District Commissioner of Stamp Duties ruled that the transfer attracted stamp duty of £462 under s 79(a) of the Stamp Duties Act 1923 but the respondent contended that the transfer fell within the exception under s 81(d) being a conveyance by a trustee to a beneficiary and was chargeable with duty of 15 s only.

[27] The case came before F B Adams J who said, at p 216 to 217:

[28] On appeal, Hutchinson J said, at p 228:

[29] Shorland J, another member of the Court of Appeal, said, at p 232 to 233:

[30] At p 234, Shorland J also said:

[31] It seems to me that Shaw Savill does not assist KSL. There is nothing there to suggest that the liquidator becomes a trustee of the company’s assets for the shareholder immediately upon his appointment but rather that this situation arises after the debts of the company have been paid. The shareholder’s right to require a transfer qua beneficiary arises after all the debts of the company have been paid.

[32] In Miller and Maund Pty Ltd & others v The Commissioner of Stamp Duties (1959) Tas SR 94, the liquidation of a company proceeded till there was one creditor and one asset being a piece of land mortgaged to the creditor. The creditor agreed to accept the shareholders as its debtors in place of the company. Pursuant to a resolution of the shareholders, the liquidator conveyed the land to the shareholders subject to the mortgage. The Commissioner of Stamp Duties assessed the conveyance for ad valorem duty. The Full Court of the Supreme Court decided otherwise.

[33] The facts are elaborated at p 96 and 97:

[34] At p 99, the Court said:

[35] At p 100 to 101, it went on to say:

[36] At p 102 and 103, it said:

[37] At p 104, the Court said that the facts in Shaw Savill were similar to those before it. However it must be remembered that in Shaw Savill, all the debts of the company had been paid before the transfer was executed by the liquidator.

[38] The Court went on to say, at p 107:

It seems to me that the reference to “the arrangement” was a reference to the oral agreement between the Miller brothers and the creditor to release the company from the debt in exchange for the obligation of the Miller brothers to pay.

[39] At p 108:

[40] In Miller and Maund, the liquidator might have been able to borrow from the shareholder to pay the creditor but that is not the position before me. Before me, KSL is both the creditor and shareholder. Besides, there, the property was conveyed to the shareholders subject to the debt and the debt owing by the company to the creditor was released without any instrument. Those are not the facts before me.

[41] Mr Gandhi also relied on Henty & Constable (Brewers) Ltd v IRC [1961] 3 All ER 1146. He submitted that in that case, the conveyance by a liquidator to a shareholder (being a transfer from a trustee to a beneficiary), attracted only nominal stamp duty as a “conveyance or transfer … not hereinbefore described” and did not attract ad valorem duty as a conveyance on sale (see para 10 of Mr Gandhi’s written submission). However, a consideration of that case reveals that the facts there were different from those before me.

[42] In Henty, vendor shareholders of a brewery company (referred to as the Constable company) entered into an agreement dated 17 April 1921 to transfer all their shares in the Constable company to a purchasing company in return for shares to be issued by the purchasing company. The share transfers were executed but not registered. There was no evidence to establish whether the share transfers had been stamped. If they had, then no ad valorem duty would have been attracted by the subsequent conveyance of the licensed premises. In accordance with the sale agreement, the vendor shareholders then resolved to wind up the Constable company voluntarily and authorised the liquidator to transfer the Constable company’s assets to the purchasing company. Pursuant to this authority, the liquidator executed a conveyance of the Constable company’s licensed premises to the purchasing company.

[43] The Court of Appeal agreed that there was a sale by the vendor shareholders of their shares but the issue was whether the conveyance of the licensed premises was a conveyance on sale. In the circumstances, the Court held it was not. Thus, Danckwerts LJ said, at p 1152:

[44] At p 1153, he said:

[45] At p 1151, Donovan LJ said:

[46] I stress that Mr Gandhi did not take the position that the instrument of transfer of the shares executed in favour of KSL was in substance a distribution in specie. He accepted that it was to discharge the debt owed by Hovert to KSL but contended that nevertheless it did not attract ad valorem stamp duty for the reasons I have mentioned.

[47] Mr Gandhi also relied on Comptroller of Stamps (Vic) v Rylaw Pty Ltd 81 ATC 4,411. I have already referred to this case above in the context of s 17 of the Act. Mr Gandhi’s submission was that this case is authority for the proposition that the distribution of land to shareholders in satisfaction of a debt owed to them does not attract ad valorem stamp duty. However, again, the facts in that case were different from those before me.

[48] In that case, Rylaw Pty Ltd (“Rylaw”) was the company in liquidation as of 3 May 1979. All its debts had been paid or provided for out of money set aside, except for a mortgage debt, owed to an outside creditor on a piece of land, and a large debt owed to the shareholders of Rylaw. The debt owed to each shareholder was proportional to the number of shares each held in Rylaw. All the shareholders entered into an agreement under seal on 4 May 1979 (“the first agreement”) between themselves that, inter alia, all the loans by them to the company were cancelled and that each would acknowledge to Rylaw and its liquidator that the loans had been cancelled and that none of them was entitled to payment upon the liquidation of Rylaw. On the same day, a second agreement was entered into, also under seal, this time between the shareholders and the company, in which the shareholders made the acknowledgement to the company in accordance with the first agreement, and requested the liquidator to transfer to them in specie the mortgaged land. Under clause 4 of the second agreement, the shareholders agreed with the liquidator and each other that they would contribute in appropriate portions “any further sums which may be required to be paid by the Company to satisfy its liabilities”. On the next day, i.e 5 May 1979, the liquidator executed a transfer of the land, subject to the mortgage, to the shareholders as a distribution in the winding up.

[49] One of the issues was whether the first agreement was a deed of gift which would attract a certain stamp duty. That is not relevant in the case before me. On the issue whether the transfer of the land was a conveyance on sale, Fullager J said, at p 4,415 to 4,417:

[50] In my view, the facts in Miller & Maund were not the same as those in Rylaw. In Miller & Maund, the shareholders gave no indemnity to the company or the liquidator in respect of the mortgage money. However, in Rylaw, the shareholders had agreed with the liquidator under clause 4 of the second agreement to contribute further sums which may be required to be paid by Rylaw to satisfy its liabilities. In my view, this was akin to an indemnity given to the liquidator even if it could be argued that it was not given to Rylaw as such.

[51] Secondly, in Miller & Maund, the shareholders obtained an oral agreement from the creditor to release the company from the debt in exchange for the shareholders’ obligation to pay the debt. There was no such agreement in Rylaw.

[52] As the debt owing by Rylaw to the outside creditor was not discharged, I do not agree that the liquidator there was obliged to transfer the land to the shareholders even though it was transferred subject to the mortgage and even though clause 4 of the second agreement obliged the shareholders to provide such further sums as may be required to pay Rylaw’s liabilities. The liquidator may have chosen to effect the transfer of the land because he was satisfied with the situation but, in my view, he was not bound to act as requested. Indeed, he took a risk because the creditor might still have looked to Rylaw, and hence the liquidator, for payment of the debt if the shareholders did not pay it and the land was not sufficient to pay the entire debt.

[53] It may be that the transfer in the case of Rylaw was not a transfer on sale because it was transferred subject to the mortgaged debt but that is not a matter I have to decide on as that is not the case before me.

[54] I also note that in Rylaw, the debt owing to Rylaw’s shareholders was released by the shareholders first and the transfer of the land to the shareholders was not in settlement of that debt. I therefore do not accept Mr Gandhi’s submission that in Rylaw, the transfer to the shareholders was in satisfaction of a debt owed to them.

[55] Mr Gandhi also submitted that in Ayerst (Inspector of Taxes) v C&K (Construction) Ltd [1975] 2 All ER 537, the House of Lords held that a company ceases to be the beneficial owner of its assets when it goes into liquidation and this view was accepted by Chan Sek Keong J (as he then was) in Low Gim Har v Low Gim Siah [1992] 2 SLR 593 in the context of revenue legislation but not necessarily in other contexts. This was because the facts in Low Gim Har did not involve revenue legislation but a dispute between two groups of beneficiaries of a testator who was a shareholder of a company which went into liquidation.

[56] However, I am of the view that even if, for the purpose of revenue legislation, a company ceases to be the beneficial owner of its assets upon liquidation, it does not follow, as Mr Gandhi was implying, that its shareholders become the beneficial owners of its assets immediately upon liquidation.

[57] For example, in Ayerst [1975] 1 All ER 162, Stamp LJ said, at p 165 to 166:

[58] In the House of Lords, Lord Diplock delivered the only judgment and parts of Lord Diplock’s judgment were cited with approval by Chan J in the case of Low Gim Har.

[59] At p 602 to 603, Chan J said:

[60] At p 604, E to H, Chan J said:

[61] Chan J then said that authority for the last stated view can be found in Shaw Savill and Miller & Maund.

[62] At p 607 and 608, Chan J continued:

[63] Then at p 612, Chan J said:

[64] Mr Gandhi relied heavily on the last passage from Chan J which I have cited above. He submitted that even if a liquidator is not, strictly speaking, a trustee of the company’s assets, a shareholder is entitled beneficially in specie to its assets where he is in a position to demand that it be transferred to him.

[65] However, I accept Mr Liu’s counter-argument that this assertion is begging the question, which is, when a shareholder can be said to be entitled to demand that the company’s assets be transferred to him.

[66] Chan J did not suggest, even in the context of revenue legislation, that, immediately upon liquidation, a shareholder is beneficially entitled in specie to a particular property of the company in liquidation or that the shareholder is entitled to demand that the particular property of the company be transferred to him.

[67] It seems to me that if KSL had asked the liquidators of Hovert to transfer the shares in Pacific Carriers to it, without more, the liquidators would not have been bound to do so until the debt owing to KSL by Hovert was resolved. Correspondingly, KSL would not be entitled to demand the transfer until the debt was resolved. Indeed, it was precisely to resolve the debt that one of the liquidators wrote to KSL to suggest the transfer of the shares to KSL “in full and final settlement of the loan owing …” and this suggestion was accepted although the consideration in the instrument of transfer was stated to be otherwise.

[68] Accordingly, I am of the view that nothing in Ayerst or Low Gim Har assists Mr Gandhi’s contentions.

[69] It may well be that KSL would have avoided ad valorem stamp duty under Article 3(c) if it had simply released the debt owing to it and thereafter the liquidators had transferred the shares in Pacific Carriers to KSL as a distribution in specie. In such a situation, the transfer of the shares to KSL would be in its capacity qua shareholder and not qua creditor. However, that is not the route that was taken. It seems to me that both the liquidators and KSL had assumed that there was no difference between the two routes and had mixed up the status of KSL qua creditor with its status qua shareholder. From one point of view, the end result is the same i.e KSL becomes the legal and beneficial owner of the shares. However, for the purpose of stamp duty, different routes or mechanisms do at times attract different results. Likewise for other revenue legislation.

[70] For example, in Andermatt Investments Pte Ltd v Comptroller of Income Tax [1995] 3 SLR 451, the appellant taxpayer had obtained a $6m overdraft secured by a mortgage on a Hillview property which it had acquired not by a direct purchase but by buying the shares in Wan Holdings Pte Ltd which owned the Hillview property. $5.8m of the overdraft was used to pay the balance of the purchase consideration which was owing to the vendor shareholders in Wan Holdings. The taxpayer sought to deduct the interest on the overdraft from its trading income. The taxpayer had derived dividend income from its shares in Wan Holdings and rental income from the Hillview property. The taxpayer’s contention was that its intention was to acquire the Hillview property and acquiring the shares in Wan Holdings was merely an interim step to take advantage of a concession in the Act. It failed before the High Court and the Court of Appeal. At p 451, Chao Hick Tin J (as he then was) delivering the judgment of the Court of Appeal said:

[71] So, here, KSL might have avoided the complication with stamp duty if it had acquired the shares in Pacific Carriers directly. Instead, it used Hovert as its vehicle to do so. Although no suggestion was made that it was improper for KSL to do this, it ran the risk of paying ad valorem stamp duty in its subsequent steps. Even then, it may well have avoided ad valorem stamp duty if it had adopted the route I mentioned in para 69 above. It did not.

[72] I now come to CIR v North British Railway Company (1901) 4 F 27 which Mr Liu cited for the general proposition that the transfer of an undertaking in consideration for the cancellation of a debt is a transfer on sale.

[73] In that case, the North British Railway Company had agreed to acquire the undertaking of the Borrowstounness Harbour Commissioners. The agreement was confirmed by Act of Parliament.

[74] The agreement stated that “as the consideration for such sale and transfer the Company shall undertake as from the date of entry, and shall free and relieve the Harbour Commissioners of the whole debts, liabilities, contracts, and obligations and engagements of the Harbour Commissioners …”. Prior to the date of the agreement, the company had become creditors of the Commissioners in terms of a guarantee, under which it had made large advances, amounting to £303,376.19s., for a series of years, to meet the interest due on the harbour debentures. This debt was set forth in the preamble of the special Act as one of the debts due by the Harbour Commissioners at the date of the transfer.

[75] The Commissioners of Inland Revenue claimed ad valorem conveyance on sale stamp duty, inter alia, upon £303,376.19s., the amount of the Company’s advances.

[76] As the Lord Ordinary (Stormonth-Darling) said in his opinion:

[77] The matter then came before the Lord President who said at p 30 to 31:

[78] Therefore, if Hovert had not been in liquidation, and Hovert had transferred the shares in Pacific Carriers to KSL in full and final settlement of Hovert’s debts to KSL, there would have been no doubt that the transfer would have been a transfer on sale.

[79] Does the fact of Hovert’s liquidation make any difference? In the circumstances, I am of the view that it does not and nothing in the cases relied upon by Mr Gandhi has persuaded me otherwise. As I have said, the transfer was, in substance, in full and final settlement of Hovert’s debt to KSL

[80] Accordingly, I declare that the instrument of transfer dated 3 December 2001 between Hovert Investments Pte Ltd (In Members’ Voluntary Liquidation) and Kuok (Singapore) Limited in respect of 305,626,000 ordinary shares of 50 cents each in Pacific Carriers Limited is chargeable with ad valorem stamp duty under Article 3(c) of the First Schedule of the Act. By virtue of s 17 of the Act, the consideration is the debt that was settled i.e $409,538,840.