NOMURA FUNDS IRELAND PLC v. THE COLLECTOR OF STAMP REVENUE

DCSA 4/2017

[2019] HKDC 852

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 4 OF 2017

---------------------------

---------------------------

---------------------------

-------------------------------------

REASONS FOR DECISION

-------------------------------------

INTRODUCTION

1.  This is an application by Nomura Funds Ireland Plc (“the appellant”) for leave to appeal to the Court of Appeal against my decision handed down on 22 March 2019 (“the Decision”). 

2.  At the end of the hearing on 14 June 2019, I dismissed the appellant’s application with costs in favour of the respondent.  I said I would provide the reasons for my decision in due course.  Here are the reasons.

BACKGROUND

3.  The facts of this case can be found in the Decision and in the Case Stated summed up by the respondent which had been agreed by the appellant prior to the original appeal hearing.  I do not need to repeat them here.

4.  The appellant relies on 4 substantive grounds plus the additional “public interest” ground in its draft notice of appeal (“the Draft Notice of Appeal”).

5.  It is trite that no leave should be granted if any of its grounds set out in the Draft Notice of Appeal is devoid of merits or unarguable. To put it in another way, unless the appellant can demonstrate to the court that there is a reasonable prospect that it will succeed in the Court of Appeal “or otherwise” that in the interests of justice that the appeal should be allowed, then no leave should be allowed: see section 63A of the District Court Ordinance, Cap 336.

6.  I shall discuss each of those grounds relied on by the appellant and the reasons why I had dismissed the application hereinbelow.

DISCUSSION

Ground 1: The court erred in law in rejecting the evidence of Luxembourg law provided in writing by Luxembourg counsel at the request of the respondent

7.   Under this ground, Mr Mariani, solicitor for the appellant, submits that whereas the court was correct to identify the House of Lords judgment in Lazard Brothers & Co v Midland Bank Ltd [1933] AC 289 as authority for the proposition that the existence and incidents of a company’s personhood, and any change thereof, are governed by the laws of the jurisdiction of its incorporation (see §28 of the Decision), it erred in law by failing to bring that general principle to its only logical conclusion in rejecting uncontested evidence of Luxembourg law as provided by Luxembourg counsel in two separate opinions, in each case expressly solicited by the respondent, and furnished by the appellant at the appellant’s expense: (see §§41 to 46 of the Decision). 

8.   In particular, the appellant submits that the Second Opinion set out in detail the analysis and reasoning of Luxembourg counsel on which its conclusions of law were premised, and was thus internally consistent on its own terms and not manifestly wrong or unfounded.  It was thus impermissible for the court to speculate on the proper content or depth of reasoning of an opinion of Luxembourg law (see §§45 to 46 of the Decision). Thus, it says that there is no tenable basis for a forum with no alternative understanding of Luxembourg law to presume what the appropriate content or mode of reasoning is for an opinion of foreign law where the conclusions draw in that opinion are on their face arguable and not patently contradictory or absurd.

9.   Further, the appellant submits that the authorities cited by counsel for the respondent and accepted by the court at §43 of the Decision in rejecting the probative value of the Second Opinion were not on point.  According to the appellant, those decisions turned on the evidential weight to be accorded to opinions of foreign law in the ambit of commercial disputes; that context is fundamentally distinct from a foreign law firm issuing an opinion addressed to a public body in Hong Kong at the express request of that public body.  At no time did the respondent ever assert any submission to the effect that Luxembourg counsel was in any way unqualified to opine on matters of Luxembourg law, or otherwise lacked the requisite objectivity or impartiality of an expert witness.  

10.   The appellant further submits that it was inconsistent with good public administration and procedural fairness for the respondent to do what they did in this case.

11.   With respect, I do not accept any of the above submissions.  

12.   It is firstly wrong for the appellant to contend that the two Opinions were “uncontested”.  The respondent did.  I accept the submission of the respondent’s counsel, Mr Jonathan Chang that, just because there was no expert opinion from the respondent it did not mean the two Opinions were “uncontested” and must be accepted by this court.

13.   I also fail to understand how the two Opinions could be said to have been adduced “at the express request” of the respondent.  I do not think it was the case at all.  In this regard, I agree with the respondent that the burden of challenging the stamp duty assessment falls on the appellant, and it is up to the appellant to adduce evidence for such purpose.  It is not for the respondent to disprove any propositions or theory, whether it is on a matter of law or fact, put forward by the appellant in such an appeal.  Hence, I agree with Mr Chang that the respondent was plainly entitled to challenge the two Opinions as not supporting the appellant’s case.  

14.   In my judgment, there is nothing in the respondent’s conduct that is “inconsistent with good public administration and procedural fairness” as the appellant contended.  In any event, it is unclear how this could possibly assist the appellant in its appeal.  As I have put to Mr Mariani during the hearing, these are clearly administrative law matters which the appellant has to seek judicial review on if they are not satisfied with the way they were being dealt with “administratively”. This court does not have any jurisdiction on such matters.

15.   Further, with greatest respect to the appellant’s solicitor, the two authorities cited in §43 of the Decision on the court’s approach in evaluating expert evidence are directly on point and I cannot see how they can be distinguished as submitted by the appellant.  I simply cannot see how these authorities are limited to “commercial disputes” only and why the court should adopt a different approach in other disputes.  I reject such absurd argument.

16.   I also believe that I have comprehensively analyzed the terms of the Merger Proposal read in light of the relevant provisions under the Luxembourg law and concluded that it was the Merger Proposal that had effected the Merger and in turn the transfer of the HK Securities to the Receiving Sub-Fund, and gave detailed reasons why the two Opinions did not support the appellant’s contention in my Decision: (see §§30-47 of the Decision).  The appellant did not advance any argument either in its skeleton or in its Draft Notice of Appeal as to why my reasoning was flawed, save to repeat that the two Opinions were “uncontested” and the court should not have rejected them.  I do not find this as a convincing argument at all and it certainly does not satisfy the established criteria for the court to grant leave to appeal.

Ground 2: Even if the court had been correct in rejecting the evidence of Luxembourg law before it, it erred in law by interpolating its own interpretation of Luxembourg law

17.   Under this proposed ground of appeal, the appellant submits that there was no basis in fact or law for the court to conclude that the transmission of the HK Securities took place otherwise than by operation of Luxembourg law.  It contends that such conclusion was inconsistent with the unambiguous and uncontroverted evidence of Luxembourg counsel (see §§40 & 46 of the Decision).  It further says that the court had neither the expertise nor the jurisdiction to opine directly on substantive matters of Luxembourg law.  It therefore erred in substituting its own views of Luxembourg law for those of Luxembourg counsel.  In effect, the court did not merely reject the evidence of Luxembourg law before it, but substituted its own views (see §§38-40 & 46 of the Decision), which was likewise impermissible and inconsistent with authoritative jurisprudence on point. In this regard, the appellant relies on Di Sora v Phillipps[1863] X HLC 624 as an “unambiguous authority” for the proposition that the court is not entitled simply to look behind the foreign legislation in question, and form its own view on the basis of its analysis or inference.  Hence, the appellant submits that the proper course of action in a case of uncontroverted evidence of foreign law being provided by a reputable firm of Luxembourg lawyers to a public body in Hong Kong would have been either for the respondent to present alternative evidence of Luxembourg law, which he could have with ease given that he had the benefit of the resources of the Government of Hong Kong to support him in that endeavour, or for the court to have directed Nomura Ireland to seek further advice from Luxembourg counsel to clarify any doubts the court may have had on the analysis contained in the Second Opinion.

18.   With respect to the appellant’s solicitor, this ground is really the flip side of the same coin as ground 1 above.  I have already dealt with this in the preceding paragraphs and would not repeat what I have stated underground 1 above.  I would however like to stress that I had already analysed the specific wording utilised in the official English language version of the Luxembourg law in the Decision: (see §§40-46 of the Decision).

19.   Mr Mariani submits that I have acted on the fundamental misconception that words as used in EU or Luxembourg legislation necessarily bear the same meaning as they would at Hong Kong law, or otherwise in the common intendment of those words.  According to him, that approach is flawed because a given word, even when translated into the English language, may have a specific juristic acceptation such that their semantic or technical meaning at Hong Kong law is not necessarily dispositive as to what they might mean in the specific context of a foreign statute (Camille & Henry Dreyfus Foundation Inc. v IRC [1954] Ch. 672, at 692; affirmed [1956] AC 39, per Evershed MR).

20.   With greatest respect, this matter, namely, that the English version of the Luxembourg law should somehow be given a different meaning from what appears on its face, is a completely new ground raised in this application. No such argument was presented before this court at the previous hearing.  The appellant has not suggested what different meaning should be ascribed to the provisions.  Thus, this proposed new ground in my view does not even take off the ground. 

Ground 3: The court erred in law in finding that there was no material distinction to be drawn between a transfer and a transmission in the context of the Stamp Duty Ordinance (“SDO”)

21.   Under this ground, the appellant submits that there is a fundamental distinction between a transfer (that is, devolution of property by a voluntary act of the disponor) and a transmission (that is, devolution of property by operation of law) in the ambit of the SDO. Mr Mariani says that distinction is long-established and fundamental in corporate law, as evidenced by the drafting of Division 4, Part 4 of the Companies Ordinance, Cap 622, and must therefore be reflected in the application of the SDO, which, in view of its subject-matter, was intended to apply to circumstances arising specifically out of matters of Hong Kong corporate and property law. 

22.   He further submits that Head 2(3) of the First Schedule of the SDO makes clear that the charge to ad valorem stamp duty applies only to a transfer, and not to a transmission. Because stamp duty is a tax on instruments, not on transactions, the “transfer” as contemplated in Head 2(3) can only be a transfer understood as an instrument of corporate law and not a transfer in the generic, non-technical sense of the term, as in ‘to transfer’ understood as a verb.  Accordingly, he says that this court erred in law in concluding that a transfer within the meaning of Head 2(3) of the First Schedule means no more than parting with something to another (see §51 of the Decision). 

23.   The appellant further submits that there is nothing in the schema or the drafting of the SDO to suggest that the charging heads in the First Schedule exist in an isolated or discrete context, wherein matters of corporate law are to be disregarded or re-characterised. Hence, the appellant contends that this court, in particular, failed to acknowledge the effect of the authorities pleaded in aid by Nomura Ireland that made clear that technical words must be given their technical meaning in construing a taxing statute: see ITSPC v Pemsel [1891] AC 531; Miramar Hotel & Investment Co & Ors v CSR [1961] HKLR 673.  Thus, my conclusion in the Decision that “in the context of determining stamp duty under the SDO, any such difference [as there is between a transfer and a transmission], if any, is plainly irrelevant” (at §49 of the Decision) was, in its submission, therefore untenable. 

24.   Further, the appellant submits that the Decision failed to consider the effect and implications of the Singaporean decision in JX Holdings Inc v Singapore Airlines Ltd [2016] SGHC 212, which, in its submission, was entirely on point, having been decided in a context of a corporate and stamp duty code very similar to those of Hong Kong.

25.   Lastly, the appellant says that I had further declined to provide any principled reason by which the transmission of the assets of a decedent under a will does not give rise to a charge to stamp duty, which was common ground throughout proceedings, but the transmission of the HK Securities by virtue of the Merger does when that very point was put to him both in the skeleton argument on behalf of Nomura Ireland and in oral submissions.  That, in turn, gave rise to an internal inconsistency in the reasoning of the Decision, with the effect of not treating like cases alike, which is inconsistent with first principles of revenue law.

26.   Again, I do not agree with the appellant’s propositions set out in the above paragraphs.

27.    I agree with Mr Chang for the respondent that, given this court’s rejection that the Merger was effected by operation of Luxembourg law, the appellant’s reliance on the alleged difference between “transfer” (by voluntary act) and “transmission” (by operation of law) could not advance its case any further.

28.   In any case, this court held in §53 of the Decision that any difference between “transfer” and “transmission” in other contexts (such as companies law or succession law) could not have any bearing on how the word “transfer” under the SDO should be interpreted.  This must be right in my view.  The appellant’s contention that “transfer” under Head 2(3) of the First Schedule “can only be a transfer understood as an instrument of corporate law” (see §5 of the draft Notice of Appeal) is not based on any legal authority and in any event made no sense, when a transfer under Head 2(3) is not limited to between corporate entities.

29.   I further agree with Mr Chang that JX Holdings, supra is not on point at all (see §7 of the Draft Notice of Appeal) for the reasons stated in his written submissions.

30.   In my view, “transfer” is not a technical word.  As I have pointed out in the Decision, it simply means “one parting with something to another”: see §51.  It is beyond dispute that under the Merger Proposal the Merging Sub-Fund part with the HK Securities which were vested on the Receiving Sub-Fund. The appellant does not seek to argue otherwise. In my judgment, this clearly was a “transfer” within the meaning of the SDO.

31.   I therefore would reject ground 3 contained in the Draft Notice of Appeal also.

Ground 4: Even if there had been a transfer of the HK Securities under the Merger, the said transfer would be exempt under section 27(5) of the SDO by virtue of being a transfer under which no beneficial interest passes

32.   Under ground 4, the appellant says that the court has erred in law by discounting the application of section 27(5) to exempt the Merger Proposal from the charge to ad valorem stamp duty as a transfer under which no beneficial interest passes (at §§54 to 56 of the Decision).  It submits that in rejecting the application of that exempting provision, it was not merely sufficient to conclude that the Merger Proposal was a transfer within the meaning of Head 2(3) of the First Schedule, but it was further necessary to conclude that as a matter of Luxembourg law beneficial interest in the HK Securities passed underthe Merger Proposal. 

33.   Mr Mariani submits that is a matter to be determined by reference to Luxembourg law (see Lazard Brothers, supra and JX Holdings, supra) and this court was not in that regard equipped to arrive at the substantive conclusion of Luxembourg law that the Merger Proposal, as an instrument of Luxembourg law, “implemented the Merger and, in turn, the transfer of beneficial interest in the HK Securities”: (see §57(3) of the Decision). 

34.   I disagree.

35.   As stated in §55 of the Decision, the appellant’s contention that no beneficial interest in the HK Securities passed under the Merger Proposal was essentially based on the same argument that the HK Securities passed under the Luxembourg law, not the Merger Proposal. In my view, given the court’s rejection of the appellant’s primary case, the alternative argument must fall away.  

36.   With respect, the appellant has failed to put forward any argument why despite there being a transfer of the HK Securities under the Merger Proposal, no beneficial interest in the HK Securities passed under Luxembourg law, and has thus failed to show how section 27(5) of the SDO applies.

The “Or otherwise” ground

37.   I agree with Mr Chang’s submission in this regard that the conclusion reached by this court in the present case is plainly fact-sensitive based on the specific terms of the Merger Proposal and has no “across-the-board” implication. In my view, no question of “fundamental importance to the fund industry in Hong Kong” can arise.

38.   I further agree with Mr Chang for the respondent that there is simply no evidence whatsoever that “historically” fund entities merging under EU law took the position that foreign law mergers of legal personality were “stamp neutral” in Hong Kong: (see §23 of the appellant’s skeleton).

39.   In any event, in my judgment, given none of the proposed 4 draft grounds of appeal has any merit or is reasonably arguable, there is no basis for the appellant to rely on the “or otherwise” limb to justify leave to appeal.

Costs issue

40.   The appellant described this as a “peripheral but pressing matter” in its written submission.  It says that it should not bear the costs of the appeal despite my dismissal of the same. 

41.   In my judgment, there is absolutely no merits in such contention.  Costs simply follows the event. 

42.   Besides, there was nothing contained in the appellant’s summons to indicate that the appellant sought to vary the costs order in the Decision.

43.   I therefore maintain my decision on costs in the appeal.

CONCLUSION

44.   For the aforestated reasons, I had dismissed the appellant’s application on 14 June 2019, with costs to the respondent, with certificate for counsel.