CHAN LI CHAI MEDICAL FACTORY (HONG KONG) LTD. v. COLLECTOR OF STAMP REVENUE

CACV 1115/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1115 OF 2000

(ON APPEAL FROM STAMP APPEAL NO. 15 OF 1997)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment of HH Judge Carlson given on 14 November 2000. The judge was hearing an appeal by way of case stated under section 14 of the Stamp Duty Ordinance, Cap. 117 ("the Ordinance").

The question in the case stated

2. The question in the case stated, which was submitted for the opinion of the court, was whether two assignments, both dated 15 September 1995, were conveyances on sale chargeable with stamp duty under Head 1(1) in the first schedule of the Ordinance according to the values of the quarter shares of the two properties as agreed between the appellant and the respondent. The first assignment was from Chan Tin Chai and Chan Chun also known as Chan Tsun Chai, the executors of the last will of Chan Shuk Ping to the appellant, Chan Li Chai Medical Factory (Hong Kong) Ltd. This was referred to in the case stated as Assignment I. The other assignment was from Chan Mo Lin Annie, administratrix of the estate of Chan Sui Chai also known as Chan Sum Yu deceased to the appellant ("Assignment II").

The facts

3. The facts are set out both in the case stated and in the judgment below but, for convenience, the material facts will be referred to.

4. The assignments related to two separate properties. The first property was in Belcher Street and the other was in Queen's Road Central. These properties were purchased in the 1920's. They had been purchased for the use in the business of a Chinese partnership that traded under the name of Chan Li Chai. That business had been founded over three hundred years ago in the Mainland and had been carried on in accordance with traditional Chinese customs and laws. Chan Li Chai was a partnership of two Chinese family tongs. There was the Chan Him Muk Tong (the "Chan family tong"), which had been formed for the benefit of the male descendants of the Chan family. There was the Li King Sun Tong (the "Li family tong"), which had been formed for the benefit of the male descendants of the Li family. From its inception the two family tongs had combined together to form the Chan Li Chai partnership.

5. In the early 1920's the Chan Li Chai partnership set up its base of operations and business in Hong Kong. The first property purchased was the Belcher Street property. This was registered in the abbreviated fictional names of "Chan Him" and "Li King". Chan Him stood for the Chan Him Muk Tong and was represented by Mr Chan Siu Chuen. Li King stood for the Li King Sun Tong and was represented by Mr Li Yung Sang.

6. The Queen's Road property was purchased later in the 1920's and was held in the same way as the Belcher Street property. After the purchase of the two properties they were used by the Chan Li Chai partnership as shop and office premises.

7. Following the death of Mr Li Yung Sang, who had been the representative of the Li King Sun Tong, the shares of the properties that he had held were vested in the names of Mr Chan Siu Chuen and Mr Li Ching Chow (or Chau) as joint tenants holding the properties on trust for the sole benefit and interest of the Chan Li Chai partnership absolutely.

8. In 1952, Chan Li Chai was registered as an unincorporated firm under the Business Registration Ordinance with members of the Chan family tong and the Li family tong named as its partners.

9. By September 1952, Mr Chan Siu Chuen had died and Mr Li Ching Chow had ceased to be a manager of the Chan Li Chai partnership. There were two assignments both dated 19 September 1952. These assigned the properties to the four persons who were then managers of the Chan Li Chai partnership. They were Mr Chan Shuk Ping, Mr Chan Sui Chai (also known as Chan Sum Yu), Mr Li Yu Chiu (also known as Lee Yue Chiu) and Mr Li Yu Liang.

10. The 1952 assignments were to the managers as tenants in common in equal shares. In fact, as recorded in the case stated, they took the shares in the properties as trustees to hold them in trust for the sole benefit of the Chan Li Chai partnership absolutely. On 19 September 1952, the two Chan managers, namely, Mr Chan Shuk Ping and Mr Chan Sui Chai, executed declarations of trust declaring that they held the shares in the two properties "in trust for the said Chan Him Muk Tong to be disposed of in such manner as the said Chan Him Muk Tong shall from time to time in writing direct".

11. In 1968, the Li trustees executed declarations of trust in relation to the Li King Sun Tong.

12. There is no dispute that these properties were used by the Chan Li Chai partnership without paying any rent and that all crown rents and rates were paid by the Chan Li Chai partnership. The properties were also mortgaged from time to time for the purposes of the Chan Li Chai partnership.

13. Up until 1972 the Chinese Partnerships Ordinance was in force. That allowed family tongs to be registered as partners in a registered partnership. Under section 4(2) of that Ordinance, if a tong was to be registered as a partner only one member of the tong would be registered as a representative of the tong. When the Chinese Partnerships Ordinance was repealed by 1971 legislation the position of the Chan Li Chai partnership obviously came into question.

14. The appellant was registered in October 1973. There is no evidence as to the identity of the shareholders or directors of the appellant. According to a declaration made in 1994 by a Mr Chan Loon Shu, who was the managing director of the appellant, there had been meetings of members of the previous Chan Li Chai partnership that had been attended by various representatives of the Chan family tong and the Li family tong in May 1975. Mr Chan says that it had been decided by those who had attended that the business and assets of what had been the previous Chan Li Chai partnership should be taken over by the appellant. Subsequently, on 23 May 1975, there was an extraordinary general meeting of the shareholders of the appellant at which the appellant resolved to take over the business of the Chan Li Chai partnership, including all the assets and liabilities of the partnership at book value as at 1 June 1975.

15. Almost all of the foregoing is recorded in the recitals to the assignments which are the subject of these proceedings.

16. Clause (G) of the recitals to the assignments says that by virtue of all these matters the shares in the two properties had been vested in Chan Shuk Ping and Chan Sum Yu "during their respective life times originally for the benefit of Chan Him Muk Tong forming part of Chan Li Chai and ultimately of the" appellant "as its successor (as is hereby confirmed and declared)."

17. Chan Shuk Ping died in October 1974 and Chan Sum Yu died in 1980. There were three executors of Chan Shuk Ping's will. One of them was Chan Po Chai, who died in October 1993, and the other two were the assignors of Assignment I. Chan Sum Yu left no will and the administratrix of his estate was the assignor of Assignment II.

18. In 1992 the appellant together with the administrators of Chan Shuk Ping's estate commenced proceedings under the Trustee Ordinance against the administratrix of Chan Sum Yu's estate as well as against the representatives of the Li family tong. The appellant and the administrators of Chan Shuk Ping's estate sought a vesting order in respect of the two properties and an order for sale. On 12 April 1995 there was a deed of settlement between the appellant on the first part, the executors of the will of Chan Shuk Ping on the second part, the administratrix of the estate of Chan Sum Yu on the third part and six further people who were said to be beneficiaries of Chan Sum Yu or otherwise of his branch, or fong, of the Chan family.

19. That deed of settlement also recited many of the facts that have been set out above. Recital (E) of the deed of settlement records that the appellant had taken over the entire business and assets of the previous Chan Li Chai partnership (including the interest in the two properties) as its successor. It is recorded that the executors of the will of Chan Shuk Ping supported the appellant in that but that the administratrix of the estate of Chan Sum Yu did not.

20. Paragraph 2.1 of the deed of settlement recites that the parties to that agreement, which therefore included both the executors of the estate of Chan Shuk Ping and the administratrix of Chan Sum Yu's estate as well as the other so-called beneficiaries, were bound by the agreement as were each of the respective members of the fongs of the Chan Him Muk Tong whom they represented. Paragraph 4 of the agreement recited the fact that there were "ex-gratia" payments totalling over HK$5 million from the appellant to the beneficiaries, which term included the administratrix of the estate of Chan Sum Yu, and that those persons declared that they relinquished all their estate right title benefit and interest of and in the two properties.

21. It was shortly following that deed of settlement that Assignments I and II were made. Clause 1 of these assignments recited that:

"In consideration of these presents, the Assignors as such Executors (administratrix) as aforesaid and as trustees of the Assignee under the Declaration of Trust hereinbefore recited ... hereby assent to the vesting in the (appellant) of and assigns unto the (appellant)" the interests held in the properties "to hold the same unto the (appellant) ... to the INTENT AND PURPORT that the (appellant) shall henceforth hold the same for its own use and benefit absolutely to the exclusion of the Assignors."

22. It is clear, therefore, that according to the assignments it was the parties' case that the beneficial interest in the properties had been held for the appellant and that the assignments were assignments of that interest to the appellant.

23. Indeed, this was the purport of the correspondence in July 1996 from solicitors acting on behalf of the appellant to the respondent. In paragraph (5) of the first letter of 11 July 1996, it is stated:

" (5) Under the said Deed of the Settlement and to settle the 1992 litigation, the Administratrix, as trustee agreed to assign the 1/4 share in each of the two subject properties held by and in the name of Chan Sum Yu deceased as trust properties, to the Company, as successor to Chan Li Chai and beneficial owner of the said 1/4 share in each of the two subject properties.

(6) Likewise, under the said Deed of Settlement, and to settle the 1992 litigation, the Executors agreed to assign the 1/4 share in each of the two subject properties held by and in the name of Chan Shuk Ping deceased as trust properties, to the Company, as successor to Chan Li Chai and beneficial owner of the said 1/4 share in each of the two subject properties."

The assessments

24. From the facts that have been recited, and were contained in the recitals to the assignments, it can be seen that, at least according to the September 1952 declaration of trust, the interests held on behalf of the members of the Chan family were held for the Chan Hing Muk Tong or at any rate for the persons who were represented by the tong. The appellant is a limited company. It is trite that a company is a different legal entity from its members. Thus the appellant cannot be equated to the tong or the members of the tong or the members of the Chan family. Hence it is clear that prior to 1995 the appellant did not own the beneficial interest of the Chan interests in the two properties. There had been no assignment of any beneficial interest. In 1972, the Chan Li Chai partnership ceased to be a valid partnership. Whatever the status of the Chan Li Chai partnership was after the repeal of the Chinese Partnerships Ordinance, the registered partners could only have held the assets used in the former partnership in trust for the persons who had been members of the partnership. In the present case that would have been the members of the Chan family tong and the Li family tong. Even had the beneficial interest in the relevant shares in the properties been held on behalf of the appellant, there had been no assignment of any interest from the Chan Li Chai partnership or its members to the appellant. At best, there had been a co-option of the assets by the appellant without demur by the members of the tongs or the registered partners.

25. On the basis of the foregoing, the original assessments for stamp duty were, in my view, correct. Assignments I and II were, on their face, assignments of the legal title in the shares in the 2 properties held for the time being by the executors and administratrix. Although there was a bald statement that the beneficial interest in the shares in the properties that were being assigned had been held in trust for the appellant, neither the facts and circumstances contained in the assignments, nor any of the evidence, supported that contention. There had never been any previous assignment of the beneficial interests to the appellant.

26. The beneficial interests therefore passed with the legal estates on the assignments. Since the assignments were "... to the intent and purport that the (appellant) shall henceforth hold the same for its own use and benefit absolutely..." the Registrar was entitled to proceed upon the basis that when the legal estate was assigned the beneficial estate was as well. On any analysis, whatever beneficial estate the assignors could have transferred was assigned.

The appellant's argument

27. The point taken by the appellant in the court below and here is that the matter should be looked at on the basis that, despite what is stated in the two 1995 assignments, the executors and the administratrix held the two properties on trust for the Chan family tong or, at any rate, for the members of the tong. The argument follows that, since the assignor of a property cannot give better title than he has, the appellant could obtain no better title than the executors and the administratrix could give. Since they were trustees they could not give the beneficial interest in the two properties to the appellant by virtue of the assignments.

28. The fact that this is completely different from the basis of the assignments is, in my view, relevant because of the provisions of section 11 of the Ordinance. Section 11 reads:

"11(1) All the facts and circumstances affecting the liability of any instrument to stamp duty, or the amount of the stamp duty chargeable on an instrument, are to be fully and truly set forth in the instrument."

29. If the assignments of the shares of the properties were to the appellant on the basis that the appellant would hold the interests on trust then the assignments would have had to have stated that. If it were the case that the beneficial interests belonged to persons who could claim to be members of the Chan family tong, either in 1971 or at some other time, or to their descendants, then the recitals and the operative part of the assignments were erroneous and the document contravened the provisions of section 11(1).

30. In any event, it is clear that because of the deed of settlement of April 1995 of the Trustee Ordinance proceedings, both the executors of the estate of Chan Shuk Ping and the administratrix of the estate of Chan Sum Yu as well as the other persons identified as beneficiaries had waived any claim to any beneficial interest in the properties. By reason of the agreement, the parties no doubt considered that there were no beneficial interests that were being overridden. Whether there could be any claims, and who might otherwise have claimed some interest, by reason of being Chan family members is unknown. Certainly none has been demonstrated to this Court.

31. The subsequent events, indeed, lead to the inevitable conclusion that it was the clear intention that the beneficial interests on the Chan side in respect of the properties had been assigned to the appellant. In October 1995 the appellant commenced proceedings against the personal representatives of the Li family members who had held the interest in the properties on behalf of the Li family. The proceedings were taken under the Partition Ordinance. The relief sought was an order for sale. An order for sale of the properties was subsequently made in the partition proceedings. In 1997, the appellant signed the agreements for sale as the beneficial owner of two equal undivided fourth parts or shares in the properties; those who signed on behalf of the Li family interests signed as the second and third vendors respectively and they signed pursuant to the order made in the partition proceedings.

32. The suggestion that the appellant's ability to enter the 1997 sales of the two properties and thus sell the beneficial interests in the two quarter shares of the two properties stemmed from the orders made in the partition proceedings is, in my view, clearly wrong. The partition proceedings were not proceedings to divest members of the Chan family tong of any beneficial interest that they might have held in the two properties. They were proceedings commenced by one of the owners of property that was held by 2 or more persons as tenants in common.

33. The founding joint affirmation in the partition proceedings was made by Chan Loon Shu and Chan Shui Kwan. It was dated 12 October 1995 and filed on 14 October. It exhibited copies of the assignments, the subject of these proceedings. Paragraphs 6(a) and 7(a) of that affirmation make clear that it was the appellant's case that it was the beneficial owner of the interests in the shares in the properties assigned by the two assignments. This stance was maintained by the appellant throughout: see inter alia the affidavits of John David IP, the appellant's solicitor, in those proceedings: Second affidavit of 18 October 1996 para. 3(d) and affidavit of 16 January 1997 throughout and in particular paragraph 3(2)(c).

34. The subsequent events show that not only did the appellant consider that following the September 1995 assignment it had both the legal and beneficial interest in the shares that had previously been held on behalf of the Chan family tong but that it was entitled to sell the full title in those shares.

35. It is said on behalf of the appellant that the provisions of section 27 of the Ordinance are not engaged because the September 1995 assignments did not operate as voluntary dispositions. Section 27(1) of the Ordinance reads:

"27(1) Any conveyance of immovable property operating as a voluntary disposition inter vivos shall be chargeable with stamp duty as a conveyance on sale, with the substitution of the value of the property conveyed for the amount or value of the consideration for the sale."

36. In my view, this section has to be read in the light of section 11 and the relevant facts and circumstances affecting the liability for stamp duty have to be taken from the instrument itself. The word "operating" means the manner in which the instrument itself purports to operate when the facts and circumstances set out therein are considered.

37. If the facts and circumstances contained in the assignments are examined as has been done, it can be seen that the assignors of the September 1995 assignments were entitled to assign both the legal and beneficial interest at least as regards the executors of the will of Chan Shuk Ping and the administratrix of the estate of Chan Sum Yu as well as of the other persons identified as beneficiaries. Whether or not there are any other persons who could claim an interest has certainly not been established. For completeness, it can be stated that the appellant has not been able point to any facts or circumstances that would alter this conclusion. The appellant's solicitor's affidavit of 16 January 1997 in the partition proceedings indicates that there has never been any such claim and that it would, perhaps, be statute barred in any event.

38. It could also be mentioned that our attention has been drawn to section 48(1)(c) of the Ordinance. Section 48(1) permits an allowance in respect of stamp duty, in amongst other circumstances, where an instrument fails in its intended purpose. It has not been suggested that that is the case here. I leave open the question as to effect of the assignments having been exhibits in the 1995 partition proceedings and as to whether they would thus constitute executed instruments which could or would have been given or offered in evidence. If they fell within that category they would come within the exception under section 48(2)(b) and stamp duty would not be recoverable in respect thereof.

39. In my view, this appeal falls to be dismissed and there should be an order nisi as to costs in favour of the respondent.

Hon Keith JA:

40. I agree with the judgment of Rogers Vice-President. There is nothing which I can usefully add.

Hon Le Pichon JA:

41. I agree.