John Wiley & Sons UK2 LLP & Anor v. The Collector of Stamp Revenue

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Press Summary (Chinese)

FACV No. 11 of 2024

[2025] HKCFA 11

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 11 OF 2024 (CIVIL)

(ON APPEAL FROM CACV NO. 23 OF 2023)

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J U D G M E N T

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Chief Justice Cheung:

1.  I agree with the judgment of Mr Justice Gummow NPJ.

Mr Justice Ribeiro PJ:

2.  I agree with the judgment of Mr Justice Gummow NPJ.

Mr Justice Fok PJ:

3.  I agree with the judgment of Mr Justice Gummow NPJ.

Mr Justice Lam PJ:

4.  I agree with the judgment of Mr Justice Gummow NPJ.

Mr Justice Gummow NPJ:

5.  Section 45 of the Stamp Duty Ordinance (Cap 117) (“the Duty Ordinance”) exempts certain instruments from stamp duty.  These include instruments “to transfer a beneficial interest in Hong Kong stock, from one associated body corporate to another”; the criterion for association is expressed in terms of beneficial ownership of “not less than 90 percent of the issued share capital”.

6.  The share transfer which is the subject of this dispute (“the Share Transfer”) apparently was made as part of an internal restructuring of the John Wiley & Sons group (“the Group”).  The business of the Group was founded by Mr Charles Wiley in the United States over 200 years ago before being taken over by his son Mr John Wiley and today includes publishing and related activities by various entities in many jurisdictions.

7.  John Wiley & Sons (HK) Limited (“the HK Co”) is a limited company incorporated in Hong Kong in 1977.  The Respondent, the Collector of Stamp Revenue (“the Collector”) issued to the First Appellant, John Wiley & Sons UK2 LLP (“LLP2”), and to the Second Appellant, Wiley International LLC (“Wiley International”), an assessment to ad valorem stamp duty in the aggregate amount of HK$6,361,204 in respect of the Share Transfer dated 30 April 2019 of the entire issued share capital of the HK Co from the First Appellant to the Second Appellant.

8.  The Appellants contend that the assessment was unwarranted because the Share Transfer was exempt from stamp duty under s 45 of the Duty Ordinance.

9.  The District Court found in favour of the Appellants,[1]  but an appeal by the Collector to the Court of Appeal was successful.[2] The Court of Appeal allowed the appeal on grounds including that the Second Appellant did not have “share capital” within the meaning of s 45.  For the reasons which follow the appeal against the decision of the Court of Appeal fails and it should be dismissed.

10.  The Second Appellant, Wiley International, is a limited liability company formed under the laws of the State of Delaware. However, the First Appellant, LLP2, is a limited liability partnership registered under the Limited Liability Partnerships Act 2000 of the United Kingdom (“the LLP Act”).

11.  Section 1(2) of the LLP Act provides that a limited liability partnership (“LLP”) “is a body corporate (with legal personality separate from that of its members)”.  The special character of this body corporate is discussed in Palmer’s Limited Liability Partnership Law, 3^rd edition, 2017, at §A1-07 in a passage which includes:

“Externally therefore [an LLP] has many similarities with companies but it has no shareholders or share capital (and so no requirements as to capital maintenance or financial assistance), no directors and no specific requirements as to meetings or resolutions.”

The significance of this passage appears later in these reasons under the heading “Issued Share Capital”.

12.  The use of the term “partnerships” in the title to the LLP Act thus is apt to confuse.  As understood at general law, an essential characteristic of a partnership is that the liability of every partner is unlimited.  However, the Limited Partnerships Act 1907 (7 Edw 7, c 24) provided for partnerships in which, while at least one partner was liable for all debts and liabilities of the firm, the liability and the powers of some partners was limited.  In Hong Kong this is provided by the Limited Partnerships Ordinance (Cap 37).  Such partnerships are substantially different in nature to an LLP and have no relation to the present dispute.

13.  The LLP is a business entity of recent appearance.  It postdates the enactment of s 45 of the Duty Ordinance.  During a financial crisis in the late 1980s and early 1990s many building societies (called “Savings and Loans”) in the United States became insolvent and legal claims were made against accountancy and legal firms.  The LLP was introduced in the United States and then elsewhere to avoid the operation of partnership doctrine that all partners were responsible for liability arising from the malpractice of one partner.[3]  In the United Kingdom, under the LLP Act there were in 2020 around 51,000 registered LLPs.[4]

14.  It may be noted that in Hong Kong and Singapore, LLPs are provided respectively by the Legal Practitioners (Amendment) Ordinance 2012 (Ord No 22 of 2012) and the Limited Liability Partnerships Act 2005 (2020 Rev Ed).  However, LLPs under Hong Kong law are not bodies corporate and subject to provisions in the legislation the law of partnerships continues to apply to these LLPs. 

15.  In Singapore, by s 3 of the Stamp Duties (Amendment) Act 2008 (Act 36 of 2008) ad valorem relief was extended to LLPs, whether formed or incorporated in or outside Singapore.  The absence of such an exemption in Hong Kong has given rise to the present litigation.

16.  To return to the present case, the essential feature of the re-organisation of the Group was to displace the indirect relationship between Wiley International and the stock in the HK Co.  Wiley International had been holder of 100% of another LLP, John Wiley & Sons UK LLP, which in turn held 100% of LLP2, the owner of all the issued shares of the HK Co. 

17.  It is convenient now to turn to the terms of the exemption provision, s 45 of the Duty Ordinance.  The critical provision thereof is subsection (2).  This states that it:

“…applies to any instrument as respects which it is shown to the satisfaction of the Collector that the effect thereof is to convey a beneficial interest in immovable property, or to transfer a beneficial interest in Hong Kong stock, from one associated body corporate to another, and also applies to any instrument that is a contract note in respect of a sale or purchase of Hong Kong stock made between one associated body corporate and another, where in each case the bodies are associated, that is to say, one is beneficial owner of not less than 90 per cent of the issued share capital of the other, or a third such body is beneficial owner of not less than 90 per cent of the issued share capital of each.” (italics added)

18.  The Appellants submit that (a) the expression “body corporate” in s 45 “constitutes an open-ended class of foreign corporations, which does not expressly exclude LLPs” (Appellants’ Case at §51) and (b) the expression “issued share capital” in s 45 denotes a “taxonomic class” which includes features of an LLP which are “materially analogous” to “share capital” (Appellants’ Case at §§74-75).  It is convenient to turn first to the term “body corporate”.

“Body Corporate”

19.  The term “body corporate” did not appear in the exemption provision in its original form.  The exemption provision was introduced in 1968 by s 3 of the Stamp (Amendment) Ordinance 1968 (Ord No 30 of 1968).  The section, then s 5A, granted relief from stamp duty on instruments which sought to “convey or transfer a beneficial interest in property from one associated company to another such company” (s 5A(2)(a)) where “both are companies with limited liability and either (a) one of them is the beneficial owner of not less than ninety per cent of the issued share capital of the other; or (b) not less than ninety per cent of the issued share capital of each of them is in the beneficial ownership of a third company with limited liability” (s 5A(4)).  This provision was based in turn upon UK legislation, the similarly worded s 42 of the Finance Act 1930 (20 & 21 Geo 5, c 28) and s 50 of the Finance Act 1938 (1 & 2 Geo 6, c 46).

20.  As Buckley J pointed out long ago: “The word ‘company’ has no strictly technical meaning”: In re Stanley [1906] 1 Ch 131 at 134.  The same may be said of the term a body corporate.

21.  The Stamp Duty Ordinance 1981 (Ord No 31 of 1981) renumbered s 5A as s 45 and used the term “body corporate” rather than “company”.  This followed the change in the UK by s 27 of the Finance Act 1967 (UK).  The UK Hansard does not indicate the reason for the change,[5] and Hong Kong’s consequential amendments simply occurred as part of a “tidying up exercise”.[6]

22.  Finally, in 1991 s 45 was amended by s 6 of the Stamp Duty (Amendment) Ordinance 1991 (Ord No 43 of 1991) to take the exemption beyond transactions in “immovable property” to transfers of “Hong Kong stock”.

23.  As at both 1968 and 1981 the old Companies Ordinance (Cap 32) provided in s 4(2)(a)-(c) for three species of company, “a company limited by shares”, “a company limited by guarantee” and “an unlimited company”.  The latter two species of company could either have or not have a share capital (s 5(4)(a); s 10).  Section 3 of the old Companies Ordinance allowed an “existing company” to register as one of the three species of company.

24.  With respect to the use of the term “body corporate” in s 45 the Collector states in the Respondent’s Case at §37 that in 1981:

“… apart from limited liability companies, bodies corporate with a share capital in existence in Hong Kong were companies limited by guarantee and unlimited companies: ss.10 and 14 of Cap 32. It is reasonable to infer that the legislature in 1981 intended to expand the scope of s.45 on transfers of property from just between limited liability companies to all bodies corporate having a share capital. There is no basis for the Appellants’ suggestion that (1) ‘body corporate’ was used to enable the s.45 relief to apply in cases where the entities were ‘incorporated abroad or were otherwise divergent from a company incorporated in Hong Kong’ ([Appellants’] Case §39), or (2) the references to ‘companies’ in the legislative materials ‘can only be assumed to have been used for simplicity’ ([Appellants’] Case §63).”

25.  The above legislative history indicates that this statement should be accepted.  The result is that the Appellants’ submission (a) described in paragraph 18 above should be rejected.  However, in oral submissions the Collector disclaimed reliance on that statement in the Respondent’s Case and focussed attention on meeting submission (b) of the Appellants.  This was that LLP2 was “associated” with Wiley International because it had “issued share capital” within the meaning of s 45 of the Duty Ordinance.

Issued Share Capital

26.  The Appellants submitted that “share capital” in s 45 signifies or refers to “a class of participation interest in the corpus and income of the corporation (or body corporate) issuing it that is economically and juristically analogous to share capital at Hong Kong law, albeit not necessarily identical to it” (Appellants’ Case at §71).

27.  The Court of Appeal observed (at §68):

“…The expression ‘issued share capital’ is a well understood concept under company law. When used in a tax statute, it should, prima facie, be interpreted to bear the same meaning as it is employed in the company law context, in the absence of any specific or different definition for that expression or any special context which suggests that a different meaning is intended. There is nothing in the context or language of Section 45 to indicate that the legislature intends to use the expression “issued share capital” in any different sense.”

28.  The Court of Appeal concluded (at §69):

“…Without in any way seeking to provide an exhaustive or all-embracing definition (which can only be done by the legislature), we venture to suggest that, as a starting point, the composite expression ‘issued share capital’ in Section 45 may usefully be understood to mean the total monetary value of the consideration paid (or given) or agreed to be paid (or given) by the shareholders in return for shares of a company as have been issued.”

29.  The Collector points to a range of Hong Kong legislation in which the term “issued share capital” has been used in this natural and ordinary sense (Respondent’s Case at §47), and gives six examples.[7]

30.  This interpretation of s 45 should be accepted. It applies the proposition that regard should be had to the context, scheme and purpose of the provision.[8]

31.  It is undisputed that an LLP cannot issue and allot share capital.  As a result, the Appellants cannot satisfy the “association” criterion of s 45 of the Duty Ordinance.

32.  The Appellants seek to meet this deficiency by pointing to features of an LLP which are “naturally analogous” to share capital.  By way of example, a “share” in the capital of an LLP is in proportion to the relevant capital contribution made by a member and economic participation in the LLP is proportionate to the share of the member.

33.  In sum, the Appellants’ construction of s 45 sought to overcome a “parochial” reading of the section and avoid the difficulty with “all possible incidents of foreign law” which might be encountered by the Collector; the foreign law “must be analysed by reference to its substance … to procure the proper application of the taxing (or exempting) provision” (Appellants’ Case at §40).  There was “no principled or intelligible policy reason” for denying relief under s 45 by reason of the presence of LLP2 (Appellants’ Case at §102).

34.  The Court of Appeal correctly held (at §71) that the Appellants’ definition of “share capital” (as a “taxonomic class” looking to features of an LLP “materially analogous” to “share capital”) is vague and uncertain with no support in the historical context of s 45.

35.  The evidence in support of the leave application to this Court indicated that there were pending before the Collector a significant number of applications for relief on similar grounds to those presented by the present litigation (Affidavit of Mr John Timpany dated 9 September 2024).

36.  The phrase “issued share capital” is to be read in the same way whether or not foreign corporations are involved.  Whether s 45 should be rectified to account for cases such as the present is a matter for the legislature. 

37.  The appeal should be dismissed with costs.

Chief Justice Cheung:

38.  Accordingly, the Court unanimously dismisses the appeal and makes an order nisi that the costs of the appeal be paid by the appellants to the respondent.  If any party wishes to vary the order nisi, written submissions should be filed within 14 days of the handing down of this judgment and the Court will make a final order as to costs on the papers.