JOHN WILEY & SONS UK2 LLP AND ANOTHER v. THE COLLECTOR OF STAMP REVENUE

DCSA 2/2021

[2022] HKDC 716

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 2 OF 2021

________________

________________

________________

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

JUDGMENT

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

1.  This is the joint appeal of the 1^st appellant John Wiley & Sons UK2 LLP and the 2^nd appellant Wiley International LLC (respectively “A1-LLP” and “A2”; and together “the Appellants”) by way of case stated pursuant to section 14 of the Stamp Duty Ordinance Cap 117 (“the Ordinance”).

2.  The assessments against the Appellants were both made on 9 December 2020.  Each of them was assessed by the respondent Collector of Stamp Revenue (“the Collector”) to be liable to pay HK$3,180,602 ad valorem stamp duty under sections 4 and 19 and Head 2(1) of the First Schedule to the Ordinance with respect to the sale by A1-LLP and purchase by A2 of the entire share capital, consisting of 6,580 ordinary shares, of John Wiley & Sons (HK) Limited (“the Company” and “the Share Transfer”) which is a company incorporated in Hong Kong under the Companies Ordinance.

3.  The matter in dispute is whether the Appellants were entitled to the relief under section 45 of the Ordinance, which provides:-

“45. Relief in case of conveyance from one associated body corporate to another

(1) Stamp duty under head 1(1), (1AA) or (1AAB) or 2(1) or (3) in the First Schedule shall not be chargeable on an instrument to which this section applies. (Amended 14 of 2011 s. 13; 2 of 2014 s. 16)

(2) Subject to subsections (4), (5), (5A) and (6), this section 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.

…

(6) The ownership referred to in subsections (2) and (4) is ownership either directly or through another body corporate or other bodies corporate, or partly directly and partly through another body corporate or other bodies corporate, and the Third Schedule shall apply accordingly for the purposes of this section.”

4.  There is no dispute that, since on the present facts (alluded to below) that there was an intermediary body corporate owning A1-LLP, which intermediary was in turn owned by A2, sub-section (6) and the Third Schedule apply deeming A2 to own the share capital of A1-LLP, save subject to the point in dispute.

5.  The only point in dispute is whether A1-LLP and the intermediary have “issued share capital”, for the purpose of section 45, in the manner and interpretation contended for by the Collector.

The facts

6.  The relevant facts as set out in the Case Stated are simple and straight forward, and are as follows.

7.  The Company was incorporated in Hong Kong on 22 April 1977.

8.  At the time of the Share Transfer, (a) the entire share capital of the Company was owned by A1-LLP, (b) A1-LLP was in turn 100% beneficially owned by its only member John Wiley & Sons UK LLP (“the Intermediary LLP”), and (c) the Intermediary LLP was 100% beneficially owned by its only member A2[1].

9.  The Intermediary LLP and A1-LLP were both incorporated as limited liability partnerships (“LLP”) in the United Kingdom under the Limited Liability Partnerships Act 2000 (“LLP Act 2000”).

10.  The Intermediary LLP and A1-LLP (together “the JWSLLPs”) were respectively incorporated on 29 March 2011 and 24 October 2011.  The basis on which the JWSLLPs were organized and the rights and obligations of their members were provided for and set out respectively in the Limited Liability Partnership Agreement dated 8 April 2011 (“Intermediary LLPA”) and the Limited Liability Partnership Agreement dated 10 January 2012 (“A1 LLPA”).

11.  On 30 April 2019, a sold note and a bought note (together “the Contract Notes”) and an instrument of transfer in respect of the Share Transfer were executed.  On the same date, a Loan Note Instrument in the sum of GBP313,240,835.09 was issued by A2 in favour of A1-LLP in settlement of the consideration for the Share Transfer.

12.  According to the Appellants (and not part of the Case Stated, but also not challenged by the Collector), the Share Transfer was made as part of an internal group restructuring.  The series of bodies corporate relevant to this appeal are but a fraction of the much larger global John Wiley & Sons related group.

13.  On 29 May 2019, the Appellants applied for stamp duty relief under section 45.  Correspondences were exchanged between the parties, in the course of which the Collector sought, and was duly provided by the Appellants with additional information and various documentations, including those mentioned above and various audited financial statements[2].

14.  The Appellants’ application for relief was ultimately rejected on the ground that JWSLLPs did not have issued share capital and therefore could not be associated for the purpose of section 45(2) of the Ordinance.  The reasons given were that an “LLP can be a parent of a group but cannot be a subsidiary of another body corporate as it does not have issued share capital”[3], and that “the existence of “shares” is the key in deciding whether body corporates are “associated””[4].

15.  As said, on 9 December 2020, the assessments were made.  Dissatisfied, the Appellants lodged this appeal by their Notice dated 7 January 2021.

The JWSLLPs as bodies corporate, their capital structure and the relevant provisions in LLP Act 2000 and the subsidiary legislation

16.  The Collector accepted that the JWSLLPs were at the material time bodies corporate within the meaning of section 45 of the Ordinance.

17.  LLP was a new form of legal entity created by the LLP Act 2000.

18.  Ms Cheung, on behalf of the Collector, asked me to give no weight to the letter of opinion dated 20 April 2020 given by Mr Georgie Blyth[5] of PricewaterhouseCoopers LLP in UK to the Collector relating to, among others, the general positions regarding an LLP under English Law as set out below[6].  The grounds were that there might be an issue of partiality on the part of Mr Blyth as an expert because PwC Corporate Services Ltd has represented the Appellants in their application for relief under section 45 and that there was no expert declaration given by Mr Blyth.  The letter of opinion has been provided to the Collector 6 months prior to the making of the assessments, which was more than 2 years ago.  Until the lodging of his written submissions on 29 June 2022, the Collector never indicated that he did not accept the letter of opinion, nor has the Collector in this appeal ever even hinted that there was an issue concerning the impartiality of Mr Blyth until for the first time Ms Cheung so submitted orally in the course of the hearing.  Had these matters been real concerns, there was no reason why they were not raised with the Appellants earlier.  In my view, it is entirely unfair for the Collector to raise such challenges so suddenly and belatedly.  It came as a complete surprise to the Appellants who, but for it, could have been able to take appropriate and timely steps to meet the challenges and to properly place the opinion before this court.  In the circumstance, I do not accept the Collector’s challenges, nor do I think the lack of a formal expert declaration should in this instance reduce the weight to be given.  I thus accept the opinion of Mr Blyth concerning the matters set out below.  In any case and even without Mr Blyth’s opinion, those matters can be gauged by this court from the clear wording of the LLP Act 2000 and its subsidiary enactments.

19.  An LLP is brought into existence by being incorporated according to the provisions of the LLP Act 2000[7]. It is a body corporate with legal personality separate from that of its members[8]. It has unlimited capacity[9].

20.  Unlike a company limited by shares incorporated in Hong Kong under the Companies Ordinance where the liability of its members to contribute is limited to the amount (if any) unpaid on the shares held by them[10], the members of an LLP “have such liability to contribute to its assets in the event of its being wound up as is provided for by virtue of this Act”[11]. There is no requirement in the LLP Act 2000 that the capital of an LLP has to be organized into a denomination of a certain number of shares each of certain nominal value.  In the same vein, there is a complete absence in the LLP Act 2000 or its subsidiary enactments of a body of provisions, like those as in the case of a company limited by shares incorporated in Hong Kong, regulating, among other things, the class, the allotment, the issuance and registration of shares, the reporting of the increase in issued share capital as a result of allotment, and the issuance of the share certificates.

21.  In those regards (and others as well), an LLP as a form of entity is much more flexible.  The mutual rights and duties of the members of an LLP, and the mutual rights and duties of an LLP and its members, are governed by agreement between the members, or between the LLP and its members[12]. In the absence of such agreement as to the matters covered by Part VI of the Limited Liability Partnerships Regulations 2001, the default provision set out therein would apply.  Among them and relevantly, Regulation 7(1) provides that all the members of an LLP are entitled to share equally in the capitaland profits of the LLP.  In this connection, the first members of an LLP are those who signed the incorporation documents, and section 9 of the LLP Act 2000 provides that the registrar must be notified of changes in membership, failing which it is an offence for the LLP and all its designated members, who are such as provided by section 8 of the LLP Act 2000.

22.  In the present case, clause 9 in both the Intermediary LLPA and the A1 LLPA, which are in identical terms, provide:-

(a)  by clause 9.1, that the initial members shall contribute the capital specified in Schedule 2 within 30 days of incorporation of [the LLP];

(b)  by clause 9.2, that at incorporation, each of the initial members acquired a share in [the LLP] in accordance with the amount or value of his contribution to [the LLP] on incorporation;

(c)  by clause 9.4, that where a member contributes capital in accordance with instructions from the designated members, that member acquires a share in [the LLP] in accordance with the amount or value of that contribution; and

(d)  by clause 9.5, that the members shall share any profits or losses of a capital nature in the same proportions in which they have contributed capital to [the LLP].

23.  The Schedules in the Intermediary LLPA and the A1 LLPA set out the total initial capital respectively for the JWSLLPs. Their amounts were the same, at GBP 100 for each of the JWSLLPs, and to be contributed by their two initial members: namely, for Intermediary LLP – GBP 99 by WWL Corporation and GBP 1 by A2; for A1-LLP – GBP 99 by the Intermediary LLP and GBP 1 by WWL Corporation.

24.  There were apparently changes in the membership of the JWSLLPs from the time of their incorporation in 2011 until the time of the Share Transfer in April 2019, which changes have not been detailed in the Case Stated.  That notwithstanding, and as said and importantly, the Collector accepted that at the time of the Share Transfer, (a) the Intermediary LLP was the only member of A1-LLP, and the Intermediary LLP thus beneficially owned 100% of the capital of A1-LLP, and (b) A2 was the only member of the Intermediary LLP which thus beneficially owned 100% of the capital of the Intermediary LLP.

Discussion

25.  The term “issued share capital” is not defined in the Ordinance.

26.  Ms Cheung informed this court, and Mr Mariani for the Appellants did not disagree, that there were no previous Hong Kong cases or UK cases on section 42(2) of Finance Act 1930 (as amended by Finance Act 1967 and the relevant part is para materia with section 45 of the Ordinance) that have discussed the point in issue.

27.  It is trite and common ground that I should construe section 45 with the purposive approach of statutory interpretation.  The approach has been summarized by Li CJ in HKSAR v Cheung Kwun Yin[13]

“11. In interpreting a statute, the court’s task is to ascertain the intention of the legislature as expressed in the language of the statute.  This is of course an objective exercise.  The court is not engaged in an exercise of ascertaining the legislative intent on its own.  As Lord Reid pointed out in Black-Clawson International Ltd v Papierwerke Waldhof – Aschaffenburg AG [1975] AC 591 at 613G.

“We often say that we are looking for the intention of Parliament, but that is not quite accurate. We are seeking the meaning of the words which Parliament used.”

12.    The modern approach is to adopt a purposive interpretation.  The statutory language is construed, having regard to its context and purpose.  Words are given their natural and ordinary meaning unless the context or purpose points to a different meaning.  Context and purpose are considered when interpreting the words used and not only when an ambiguity may be thought to arise.  In HKSAR v Lam Kwong Wai (2006) 9 HKCFAR 574 at 606E, Sir Anthony Mason NPJ stated:

“The modern approach to statutory interpretation insists that context and purpose be considered in the first instance, especially in the case of general words, and not merely at some later stage when ambiguity may be thought to arise.”

See also Medical Council of Hong Kong v Chow Siu Shek (2000) 3 HKCFAR 144 at 154 B-C.  As the Court pointed out in Town Planning Board v Society for the Protection of the Harbour Limited (2004) 7 HKCFAR 1 at 14 A-C, the mischief rule is an early example of the purposive approach.  And the purposive approach (including the mischief rule) has been reflected in Hong Kong in s.19 of the Interpretation and General Clauses Ordinance, Cap.1[5].

13.    The context of a statutory provision should be taken in its widest sense and certainly includes the other provisions of the statute and the existing state of the law.  See Town Planning Board v Society for the Protection of the Harbour Limited at 13 I-J and Attorney-General v Prince Ernest Augustus of Hanover [1957] AC 436 at 461.

14.    The purpose of a statutory provision may be evident from the provision itself.  Where the legislation in question implements the recommendations of a report, such as a Law Reform Commission report, the report may be referred to in order to identify the purpose of the legislation.  The purpose of the statutory provision may be ascertained from the Explanatory Memorandum to the bill.  Similarly, a statement made by the responsible official of the Government in relation to the bill in the Legislative Council may also be used to this end.  See PCCW – HKT Telephone Ltd v Telecommunications Authority (2005) 8 HKCFAR 337 at 351 F-J and Director of Lands v Yin Shuen Enterprises Ltd (2003) 6 HKCFAR 1 at 15 A-H.”

28.  Ms Cheung placed emphasis on the following passages by Fok PJ in T v Commissioner of Police[14]

“195.   Nevertheless, the object of the exercise is to ascertain the legislative intent of the language of the statute and, in this regard, a court cannot attribute to a statutory provision a meaning which the language, understood in the light of its context and statutory purpose, cannot bear: see HKSAR v Lam Kwong Wai at §63 and China Field Ltd v Appeal Tribunal (Buildings) (No.2) (2009) 12 HKCFAR 342 at §36.”

“222. However, it is important to recognize that there are limits to the extent this statutory purpose can be used to construe the PPEO. … As Lord Millett NPJ observed in China Field Ltd v Appeal Tribunal (Buildings) (No.2):

“There can be no quarrel with the principle that statutory provisions should be given a purposive interpretation, but there has been a distressing development by the courts which allows them to distort or even ignore the plain meaning of the text and construe the statute in whatever manner achieves a result which they consider desirable. It cannot be said too often that this is not permissible. Purposive construction means only that statutory provisions are to be interpreted to give effect to the intention of the legislature, and that intention must be ascertained by a proper application of the interpretative process. This does not permit the Court to attribute to a statutory provision a meaning which the language of the statute, understood in the light of its context and the statutory purpose, is incapable of bearing”.

29.  The point made by Ms Cheung was that the court must give due effect to the words “issued share capital” and cannot ignore their plain meaning.  The point of course is valid, and is indeed trite, and was not disputed.  The question however remains: what is the meaning of “issued share capital” in section 45, properly construed ?

30.  I turn now to the legislative purpose of section 45.  The purpose of the corresponding provision in the UK has been explained by the House of Lords.  In Escoigne Properties Ltd v. IRC[15], Lord Denning observed

“It was to give relief from stamp duty on an instrument by which one company transfers property to its associated company: provided that the association is so close that the transfer is little more than a change in the nominal ownership, with the underlying control remaining the same: and a 90 per cent shareholding is made the test of closeness.” (p.567)

Subsequently in Shop and Store Developments Ltd v IRC[16], Lord Reid said

“As I understand it the reason for the exemption is that, when the whole transaction is between closely associated companies, what is in effect an exchange between them of property for shares or money is more a matter of internal administration than a sale in the ordinary sense.” (p.489G)

31.  The above observation by Lord Denning was cited with approval by Lord Millett NPJ delivering the leading judgment in the Court of Final Appeal case of Collector of Stamp Revenue v Arrowtown Assets Ltd[17] at paragraph 154.  The learned NPJ added in the next paragraph:-

“155.   There is no magic in the figure of 90%. The legislature could have chosen a different figure for its purpose. It is not its purpose to grant relief in respect of a transfer to a company which is 90% controlled by the transferor. Its purpose is more general: to grant relief to transfers between associated bodies. 90% is merely the test of association. If the test is not satisfied, there can be no relief. But it does not follow that, if the test is satisfied, there must be relief. That depends on whether the test is satisfied in circumstances contemplated by the section, that is to say where it can be said that the bodies are genuinely associated so that the transfer does not involve a significant change of ownership.”

32.  Mr Mariani submitted, not so much through an analysis on the meaning and interpretation of the words “issued share capital” but focusing heavily on the purpose, that the Share Transfer was a genuine transfer between the Appellants which (together with the Intermediary LLP) were genuine associated bodies whose degree of closeness was more than is required and the transaction was clearly one that is contemplated by section 45.

33.  Ms Cheung submitted that, such regardless, “the test” had to be satisfied; and the test of association being “beneficial owner of not less than 90% of the issued share capital of the other”.  She contended that as the JWSLLPs did not have “issued share capital”, they could not be owned, or owning the other, as to 90% of “issue shared capital”, they therefore did not form part of a series of “associated bodies corporate” and therefore the Appellants were not entitled to relief under section 45.

34.  The contentions advanced by Ms Cheung on behalf of the Collector ran thus:-

(a)  “such context [The context of section 45] would include what “issued share capital” customarilymeans in company law”[18] (my emphasis);

(b)  The Collector then cited a number of UK authorities interpreting provisions in the Companies Act or provisions the context of which clearly concerned “company with limited liability”.  These cases included Re Ambrose Lake Tin and Copper Co[19], Oswald Tillotson Ltd v Commissioners of Inland Revenue[20], National Westminster Bank Plc v Inland Revenue Commissioners[21].  She also cited §4.010 of Palmer’s Company Law.

(c)  “[These] authorities demonstrated that the word “issue” may have different meaning in different statues, yet in company law, the issue of share capital encompass [sic] the entire process whereby unissued shares are applied for, allotted and finally registered.”[22] (original emphasis in bold; my emphasis in underline);

35.  The Collector then contended that

“It is clear that the word “issued”, when used to describe share capital, has a specific meaning … It connotes the entire process whereby unissued shares are applied for, allotted and finally registered. The entire process was regulated and made transparent to the public under the Companies Ordinance, Cap 32 (as well as the new Companies Ordinance, Cap. 622) which was in existence then and continually up until the present. It was this form of association which the Legislature chose to adopt for the purposes of defining “associated” and “ceased to be associated” under section 45 of the SDO”[23] (my emphasis).

36.  Thus, the Collector was contending that the term “issued share capital” as used in section 45 has the same meaning as the term has in company law context, and carries with it and forming an integral part of its “meaning” the same attributes and requirements (as to allotment, registration, reporting and such) as provided by various provisions in the Companies Ordinance (“the Collector’s Interpretation”).

37.  As seen above, the Collector also contended that by virtue of the Collector’s Interpretation, the term essentially also forms part of the requirement of “the form of association”, and not merely as part of the test of the closeness of the association between those bodies corporate.

38.  The Appellants disputed that the term as used in section 45 should be so construed.

39.  I note at this juncture that the Collector’s Interpretation is not one based on the natural and ordinary meaning of the words, which is the starting point for statutory interpretation.  At the hearing, this court has enquired whether the Collector was therefore contending that the term “issued share capital” was a term of art that the Legislature had adopted in section 45.  The Collector responded that such was not his contention.

40.  The Collector argued that the following “context of section 45” pointed to and supported the Collector’s Interpretation.

41.  Section 45 was originally section 5A of the old Stamp Ordinance introduced by section 3 of the Stamp (Amendment) Ordinance 1968[24] (“Old Section 5A”).  Old Section 5A read

“(1) Stamp duty under head 19 of the Schedule shall not be chargeable on an instrument to which this section applies.

(2) This section applies to any instrument as respects which it is shown to the satisfaction of the Collector that –

(a) the effect of the instrument is to convey or transfer a beneficial interest in property from one associated company to another such company; and

(b) the conveyance or transfer was not effected in pursuance of …

(3) …

(4) For the purpose of this section a company shall be deemed to be associated with another company if, but not unless, 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.” (my emphasis)

42.  In 1981, the old Stamp Ordinance was consolidated and amended by the Ordinance in which Old Section 5A was completely rewritten into the current section 45.

43.  It was argued that the above legislative history pointed to the Collector’s Interpretation because: “In particular, whilst the concept of “bodies corporate” was introduced to replace “companies with limited liabilities” notably, ““issued share capital” remained the definition of association”[25]; and that “Having made that change, however, the Legislature decided that the test for defining association would be by reference to “issued share capital”[26].

44.  With respect, the argument itself presupposes the result, namely that the Legislature intended that the term “issued share capital” in Old Section 5A by itself had the specific meaning and purport the same as the Collector’s Interpretation, which the Legislature “chose to retain” when it substantially revised Old Section 5A into section 45.

45.  In my view, the legislative history not only did not support the Collector’s Interpretation, it indicated against it.

46.  Old Section 5A(4) indeed began with the requirement that all the companies in the series of associated companies had to be “companies with limited liability”.  That being the prerequisite, the term “issued share capital” in Old Section 5A would have to be construed in the context of a “company with limited liability”, and therefore construed in the company law context.  Therefore in my view, the term would have been so construed in Old Section 5A not because the term itself carried the specific meaning and purport as the Collector’s Interpretation, but because the controlling context of “company with limited liability” dictated it.  That context however was removed in 1981.

47.  By the 1981 amendment, the Legislature completely removed that prerequisite in section 45.  The Legislature further adopted the term “body corporate” in place of the term “company”.  At the hearing, the Collector did not dispute that the term “body corporate” is a broader term than “company”.  In my view, in so enacting the Legislature clearly intended to open up the ambit of section 45 relief (a) to encompass not only associated groups whose relevant members were incorporated only as “companies with limited liability” but to encompass all associated groups regardless of whether their relevant members were incorporated as companies with limited liability or incorporated in other forms of bodies corporate, (b) to encompass all bodies corporate regardless of whether they were limited liability entities or unlimited ones, and (c) by so doing, removing the doubt that entities incorporated overseas which might not be called or qualified as “companies with limited liability” might also be entitled to relief.

48.  Such opening-up in my view clearly militated against the Collector’s Interpretation.  According to the Collector’s contentions, by the 1981 amendment the Legislature on the one hand completely removed a hitherto clear and expressed restriction and intended to open up the ambit of section 45 as aforesaid; but on the other hand, “retained” as now the only controlling test (not counting the 90% of ownership element) by way of the “customary meaning” allegedly embedded in the term “issued share capital” which is based on and in the context of Hong Kong company law, and thereby restricting again the ambit of section 45 to those groups all of whose relevant members have to be incorporated with “the entire process whereby unissued shares are applied for, allotted and finally registered” (“the Entire Process”), the same as required by and known under the Hong Kong Companies Ordinance and common law in respect of a company limited by shares.  Not only that, this alleged test is evidently much more ambiguous than the earlier clear and expressed restriction, while the substance of this test is whether there is the Entire Process involved in the share capital of that entity, a matter that pertains very much to a company limited by shares.  Given the above, I do not accept that the legislative act in 1981 was so inconsistent.  In my view, and on the contrary, by enacting the changes in 1981, the Legislature intended to simplify the criterion for entitlement to relief.

49.  With the removal of the said prerequisite, there is in my view no language within section 45 itself or other context that points to the Collector’s Interpretation and displaces the starting point of construing the term according to its natural and ordinary meaning in view of the legislative purpose.

50.  Moreover, there is a very important context urged upon the court by the Appellants, which is a corollary of what I have mentioned above.  Nowadays, it is commonplace that a group of associated bodies corporate would consist of members that are bodies corporate incorporated overseas under foreign laws.  The Collector expressly accepted that section 45 intends to afford relief to transactions involving overseas bodies corporate if the requirements therein are met.  Therefore, if the term “issued share capital” is construed according to the Collector’s Interpretation, the entitlement of these overseas bodies corporate to the relief would, despite having met the required closeness of association, also depends on whether in their jurisdiction of incorporation there is the Entire Process for the particular form of body corporate.  At the hearing, the Collector said that a “similar” set of mechanism and procedures akin to the Entire Process could be sufficient to meet the requirement and it would be for the Collector to decide.  The question then begged to be asked is how and in what way similar is “similar”.  Be that as it may.  It seems to me inescapable that much uncertainty and difficulty could be resulted if the Collector’s Interpretation is adopted.

51.  More important still, bearing very much in mind the general purpose of section 45 as explained above, this court accepts Mr Mariani’s submission that there cannot be found any principled, commercial, policy, or even discernable, reason or purpose why the Legislature would intend to selectively give relief only to those closely associated groups of bodies corporate the “share capital” of their relevant members have been “issued” with the Entire Process, and not to others, even though the closeness of association is shown.  The Collector could not offer any reason or purpose, but fell back on the bottom line that it is the prerogative of the Legislature to choose.  That is of course ultimately true if the statute, properly construed, yields but only that result, which, as will be explained below, I do not find is the case here.

52.  By reasons expressed above, I am far from persuaded that the Collector’s Interpretation is the true and proper construction of the term “issued share capital” as used in section 45.

53.  I turn now to consider the natural and ordinary meaning of the words “issued share capital” in view of the legislative purpose of section 45.

54.  The word “issue” is defined in the Shorter Oxford English Dictionary[27] (among other meanings which clearly have no relevance) as “give or send out authoritatively or officially; give (something) out officially to (a person)”.  Having regard to the context and purpose of section 45, I would construe “issued” in context as meaning “having been legally given to (those entitled to the share capital) in a legally completed transaction”.

55.  As for the meaning of “share capital”, I find helpful the short explanation given by Megarry J (as he then was) in Canada Safeway Ltd v Inland Revenue Commissioners[28].  Without the need to go into the facts and very briefly, the case concerned the construction of s 42 of the Finance Act 1930 (as amended by Finance Act 1967), which is the UK corresponding provision of section 45.  The question there was whether it should be calculated according to the actual value or the nominal value of those shares when calculating the “90% of the issued share capital” ownership.  The learned judge decided that it was the nominal value.  In the course of arriving at that conclusion the learned judge explained that “The concept is that of a “share capital” which is “divided into shares of a fixed amount”[29].

56.  On my part, I take the view that the ordinary and natural meaning of the words “share capital” is simply just what that learned judge explained: “a share capital is one that is divided into shares of a fixed amount”.  To fulfil the purpose of section 45 such that the degree of closeness of the association can be tested out by reference to a beneficial ownership of 90% of the issued share capital of the other, I would think that the division must be one legally recognized according to the laws of the jurisdiction in which the body corporate was incorporated.  To be clear, as I am construing those words according to their ordinary and natural meaning, I do not interpret “share capital” as meaning that the capital must necessarily be divided by way of a denomination into standard units called “shares” that are required to be registered, or are evident by share certificates in the manner the Collector contended for.  Rather and in my view, it would amount to “share capital” so long as the capital of that body corporate is divided into quantifiable portions (or shares in the ordinary use of that word, such as 1/3 share and 1/2 share or a percentage share), whether expressed in terms of monetary value or in term of proportions, and all such shares together make up 100% of the total value of the capital; and as said, such organization of its capital is legally recognized.

57.  In my view, the term so interpreted as set out in paragraphs 54 and 56 above enables, and does not hinder, the operation of the test of closeness of association as stipulated in section 45 to use it as a yardstick to determine the entitlement to relief according to the legislative purpose.

58.  Therefore and in my judgment, I would so interpret the term.

59.  The Collector contended at the hearing that such interpretation would pose practical difficulties to the Collector, in that such share capital is not registered, and it is not transparent to the public.  With respect, I find little substance in that contention.  As in the present case, since the Appellants had to show to the satisfaction of the Collector that they were entitled to relief, they therefore readily provided the Collector documentations, information and proofs upon the Collector’s requests.  Despite there was “no registration” of the members’ share capital in the JWSLLPs, and that such information was not “transparent to the public”, the Collector was able to come to a determination of the percentage of ownership of the respective share capital of the JWSLLPs.

60.  Applying the said interpretation, it is evident that the JWSLLPs have issued share capital within the meaning of section 45, each in the nominal value of GBP 100, and they have been divided into 2 portions or shares – GBP 1 and GBP 99, which had been taken up and paid for by, therefore issued to within the meaning of section 45, the initial members.  As said, those shares in the capital had changed hands in the meantime resulting in the ownership positions mentioned above at the time of the Share Transfer.  It is also amply evident that the JWSLLPs together with A2 met the test of closeness in their association in that A1-LLP was ultimately wholly owned by A2.

61.  For completeness, I should mention this.  In the Collector’s written submissions, he no longer pursued one of the grounds of rejection of relief given to the Appellants, namely, that an LLP cannot be a subsidiary based on the Stamp Taxes and Shares Manual issued by Her Majesty’s Revenue and Customs.  Ms Cheung informed me that she had no instructions to abandon the point either.  As an LLP has unlimited capacity and it can legally be the only member of another LLP, as in the facts of the present case, which the Collector has accepted in the Case Stated, I do not find any merits in that ground.

Disposal

62.  In the premises,

(a)  my answer to the first question in the Case Stated is that the Collector was not correct in rejecting the Appellants’ claim for relief under section 45 of the Ordinance and specifically, that the Appellants were “associated bodies corporate” within the meaning of that section;

(b)  my answer to the second question is that as the Appellants were entitled to the relief under section 45, stamp duty should not be chargeable under the heads mentioned in section 45(1) in respect of the Contract Notes; and

(c)  I therefore allow the Appellants’ appeal.

63.  On a nisi basis, I order the Collector to pay the Appellants their costs of this appeal to be taxed if not agreed, and insofar as necessary, with a certificate for solicitor advocate. This cost order nisi will become absolute within the next 14 days unless any party applies to vary within that period.

64.  Last but not least, I thank Ms Cheung and Mr Mariani for their assistance.