WONG SUET FOON SHIRLY v. COLLECTOR OF STAMP REVENUE

DCSA 5/2016

[2019] HKDC 268

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 5 OF 2016

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DECISION

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INTRODUCTION

1.  This is an appeal brought by the appellant Madam Wong Suet Fong Shirly (“the appellant”) against the assessment made by the Collector of Stamp Revenue (“the respondent”) on the stamp duty charged for an assignment for a property known as Flat 3, 26^th Floor of Toa Yuen House, Chuk Yuen (North) Estate, No 8 Wing Chuk Street, Wong Tai Sin, Kowloon (“the Property”).

BACKGROUND

2.  The appellant is one of the 5 surviving children of the former registered owner of the Property, namely, Madam Ming Sum Yee, deceased (“the Deceased”). 

3.  The Property had become vested unto the Deceased under an Assignment dated 29 September 2010 and registered in the Land Registry by Memorial No 10102103020123 (“the Assignment”) under the Tenants Purchase Scheme provided by the Hong Kong Housing Authority (“HKHA”), which restricts, inter alia, alienation.

4.  The Deceased died intestate on 20 February 2012 and letters of administration in respect of the estate of the Deceased were issued in favour of the appellant on 4 June 2012 by the Court of First Instance in the High Court (“the Grant”).

5.  The Deceased died leaving her 5 surviving children, including the appellant, being the only persons entitled to her estate comprising and covering the Property.

6.  To give effect to the Grant and for the purpose of seeking approval of any “alienation” by succession, the surviving children, represented by the appellant, made enquiries to and obtained advice (which subsequently turned out to be erroneous) from the staff of the HKHA, that “only 2 (children) can become the succeeding owners of the Property under its policy or rules”.

7.  Purportedly in reliance upon the advice of the HKHA, the surviving children came to their own agreement that 3 of them would abandon and/or renounce their shares of the Property from the estate of the Deceased.  They did so under a Deed of Family Arrangement dated 3 May 2014 (“the Deed”) whereby 3 of the surviving children agreed to so abandon, disclaim or renounce their rights, title, benefits, interests, claims and demands in the Property, leaving the appellant and one other sibling beneficiary, namely, Wong Suet Mui Alice (“Alice”), being the 2 beneficiaries and joint tenants of the Property thereunder.

8.  The Deed was presented to the Inland Revenue Department (“IRD”) for adjudication of any stamp duty on or about 9 May 2014.  A stamp duty of HK$16,650 was assessed thereon which was finally paid on 1 December 2015, subject to protest and objection.

9.  Pursuant and/or subject to the Deed, the appellant as the administratrix under the Grant, executed an Assent on 16 October 2014 (“the Assent”) thereby vesting the Property unto the appellant and Alice as the only co-owners and joint tenants of the Property.

10.  The Assent was duly presented to the IRD for adjudication of any stamp duty on or about 21 October 2014 and was duly adjudicated to be “not chargeable with any duty” by the IRD on 1 December 2014, most probably due to the fact that stamp duty of the same amount had already been charged or imposed on the Deed. However, there was never any reason given for this “adjudication”.

11.  By a letter of the IRD (acting for and on behalf of the Collector of Stamp Revenue) dated 4 June 2015 to the appellant’s then solicitors, IRD was of the view that the Deed and the Assent “operate as voluntary disposition(s) inter vivos” to the extent that “the transfer(s) of the Property is in excess of the transferees’ entitlement in the estate in accordance with Intestates’ Estate Ordinance, and is/are chargeable with stamp duty as conveyance(s) on sale by virtue of section 27(1) of the Stamp Duty Ordinance.”

12.  It was the case of the respondent then that:-

(1)   Ad valorm stamp duty at Scale 1 rates (the higher rates) of Head 1(1) in the First Schedule of the Stamp Duty (Amendment) (no 2) Ordinance 2014 applied to the Deed and the Assent, having retrospective effect commencing on 23 February 2013; and

(2)   Section 29AL of the Stamp Duty Ordinance (“the Ordinance”) provides that such a “conveyance on sale” is chargeable with the stamp duty at Scale 2 rates (the lower rates) if, among others, the property concerned is residential property and the transferee, or each of the transferees is closely related to the transferor, or to each of the transferors.

13.  The Property was valued by the Commissioner of Rating and Valuation at HK$1,850,000 as at the date of the Deed, a figure which is not disputed by the parties.

14.  Despite of the objection of the appellant to the respondent’s view as aforestated, the respondent, on 28 December 2015, issued the assessment and charged the stamp duty of HK$16,650 on the Deed (and on the Assent) on the grounds that the Deed and the Assent “operate as a voluntary disposition inter vivos” and therefore were chargeable with stamp duty under Section 27(1) of the Ordinance.  The respondent took the view that “the vesting of the said Property by the appellant in her capacity as administratrix of the said Deceased in the said other beneficiary and the appellant (in her own capacity as one of the beneficiaries) was not a transfer of residential property between close relatives, and Scale 2 rates were not applicable thereto”.  As a result, the Higher Scale 1 rates were charged.

15.  By 2 letters dated 18 April 2016 and 14 November 2017 respectively, the appellant objected to or otherwise appealed against the respondent’s assessment based on the following grounds:-

(1)   The confinement of two successors by reason of any alienation restriction (as per the advice of HKHA) in taking the Property was caused by the Government, albeit via another department;

(2)   Any transfer was in any event made between close relatives and therefore should only be chargeable with Scale 2 rates;

(3)   The transfer of the estate, ie the Property of the Deceased unto the two beneficiaries under the intestacy should be exempted from or otherwise not be chargeable with, any stamp duty; and

(4)   In any event, it would be inappropriate for the respondent to impose, charge or levy the Scale 1 rates stamp duty for the transfer of the estate, namely, the Property of the Deceased unto the two beneficiaries succeeding.

DISCUSSION

Issues for the Court’s determination

16.  In response to this appeal which was commenced on 28 January 2016, the respondent stated his case in writing dated 15 December 2017 (“Case Stated”) for the court’s determination as follows:-

(1)   Whether the Deed and the Assent (collectively as “the Deeds”) are chargeable with ad valorem stamp duty; and

(2)   If so, with what amount of stamp duty they are chargeable.

Respondent’s “change of stance”

17.  (1)   By the written submission of the respondent’s Counsel in Chinese dated 17 April 2018, the footnote no 7 on page 2 thereof in particular, the respondent appeared to have changed his stance in basing the stamp duty on the Assent, and not the Deed, despite the payment collected was franked on the Deed.  The footnote stated that:-

“本上訴的《印花稅評稅及繳款通知書》[T9/52] 提及署長就《家庭協議契據》及《允許書》兩份文件徵收印花稅的說法並不正確，正確的分析應為只有《允許書》需要繳付印花稅…”

[English Translation thereof as follows: the statement of the Collector charging stamp duty on the two documents, the said Deed of Family Arrangement and the said Assent as mentioned in “the Stamp Duty Assessment and Demand for Payment” (T9/52) in this Appeal was incorrect, the correct analysis is that ONLY “the Assent” was required to pay the stamp duty…”];

   (2)   By the letter of the appellant’s solicitors to the Department of Justice (“DoJ”) (who represents the respondent) dated 5 June 2018, it sought the respondent’s clarification on the situation, ie whether the respondent now bases its stamp duty on the Assent and not the Deed;

   (3)   By a letter dated 11 June 2018, DoJ replied that “the Collector has nothing to supplement, and repeated the 2 questions posted to the court; and 

   (4)   The appellant therefore feels obliged to address the court on both documents, regardless of the said “correct analysis” of the respondent’s counsel.

Issues on appeal as contended by the appellant

18.  The following are the issues contended by the appellant in the appeal:

(1)    Whether or not under the Deed and/or the Assent, the abandoned, disclaimed or renounced “shares” and/or “interest” of the alleged “60%” of the Property were “voluntary dispositions inter vivos” by these (three) disclaiming to the appellant and the other beneficiary thereby attracting stamp duty; and

(2)   If they were or any of them was, whether Scale 1 (higher) rates or Scale 2 (lower) rates should be so chargeable and charged by reason of any (close) relationship or at all?

The appellant’s case

19.  Mr Roland Lau, appearing with Mr Victor Yuen, for the appellant, submits that it is obvious but unfortunate that the respondent, either by an oversight or deliberately, overlooked or ignored the effect of section 27(5) of the Ordinance, which provides:-

“Nothing in this section shall apply to a conveyance or transfer…under which no beneficial interest passes in the property conveyed or transferred, or made to a beneficiary by a trustee or other person in a fiduciary capacity under any trust, whether express or implied…”

20.  The appellant submits that it is trite that under section 27(5) an Assent in respect of immovable property is normally not liable to duty as conveyance on sale because no beneficial interest passes.

21.  The appellant further submits that it is also trite that “in order to have a sale for the purpose of conveyance on sale there must be mutual assent as to the purchase and sale of immovable property, in other words, a contracted element must be present”, therefore, “conveyances of devised property to a named beneficiary are not dutiable, as no contractual element is present”: see Kemp v Commissioners of Inland Revenue [1905] 1 KB 581 (“Kemp”).  Similarly, an assent by an executor or administrator to a sole residuary beneficiary is not dutiable, as the beneficiary is the only person beneficially entitled to an interest in the estate, and no beneficial ownership passes on the conveyance.

22.  The appellant also contends that such an assent is not chargeable with stamp duty can also be found in the Encyclopedia of Hong Kong Taxation, Volume 1, §§ [245] – [255].

The respondent’s case

23.  The respondent originally claimed that under sections 27 (1) and (4) of the Ordinance, both the Deed and the Assent were liable to be charged with the Scale 1 rates.  By the respondent counsel’s submission in Chinese dated 17 April 2018, the respondent has changed his stance to charge the stamp duty only on the Assent for the same amount. However, the questions posted to the court under the Case Stated remain the same, namely, whether the Deed and the Assent are chargeable with ad valorem stamp duty.

24.  The primary submission of Mr Jonathan Chang, counsel for the respondent, is that the Assent constituted a conveyance of immovable property operating as a voluntary disposition inter vivos to the appellant and Alice within the meaning of section 27(1) of the Ordinance to the extent in excess of their entitlement under the applicable intestacy law, ie 60% (as opposed to 40% in aggregate), and as such ad valorem stamp duty under Scale 1 of Head 1(1) in the First Schedule of the Ordinance was chargeable on the Assent.

25.  Mr Chang further submits that Scale 2 rates, ie the lower rates, were not applicable given the vesting of the Property pursuant to the Assent was not a transfer of residential property between close relatives such that section 29AL of the Ordinance was not applicable. 

Findings of the Court

26.  Having heard the submissions of counsel on both sides, I am of the view that the respondent is correct in charging the ad valorem stamp duty on the Assent in this case.

27.  My reasons are as follows.

28.  First, I agree with Mr Chang that the dealings between the HKHA and the appellant and her siblings, ie of how they came to execute the Deed and the Assent, has no bearing on the 2 questions to be determined by the court in this appeal.  The fact was HKHA had never imposed any restriction of any maximum of assignees for properties under its Tenant Purchase Scheme means that whatever misunderstanding or misconception they might have, which led to 3 of the siblings giving up their rights/claims to the Property, has nothing to do with the stamp duty subsequently imposed by the respondent. 

29.  Equally, I consider that this case does not fall within the ambit of the public law which the appellant’s legal advisers have devoted very lengthy passages in their written submissions (together with 17 cases in their list of authorities) arguing why the principles of procedural fairness should apply in this case.  After some exchanges between the bench and the appellant’s counsel during the hearing, the appellant has very wisely abandoned her claim based on those public law principles.    

30.  Second, I am of the view that the appellant’s main contention devoid of any real substance. 

31.  As can be found in the appellant’s written submissions (which were supplemented by the appellant counsel’s oral submissions), her main and perhaps only serious contention with any real substance in this appeal is that no beneficial interest of the Property had ever passed under the Assent, thus no stamp duty is chargeable against it as a conveyance of immovable property under section 27(1).  In particular, the appellant relies on section 27(5) and the above-cited passage in Kemp, supra. and the case of Baker v & another v Inland Revenue Commissioner [1984] AC 270.

32.  It is trite that a written assent is required to effect the passing of a legal estate, even if the personal representative and the beneficiary are the same person: see section 66(3) of the Probate and Administration Ordinance in Hong Kong, Cap 10 (“PAO”); Wong Mei Sin v Ng Wai Kin [2011] 4 HKLRD 109 at §32.

33.  In my judgment, the Assent in this case has operated as an assignment which transferred the Property to the appellant and Alice.  This can be found in clause 1 of the Assent which provided:

“In pursuance of the [Deed] and in consideration of the premises, the [appellant] as the administratrix of the estate of the [Deceased] and in the course of administration of the estate of the [Deceased] DOTH hereby ASSENT to the vesting in and ASSIGN unto the [appellant and Wong Suet Mui Alice] of the Property TO HOLD the same unto the [appellant and Wong Suet Mui Alice] as Joint Tenants for the residue of the term of years created by the Government Lease referred to in the Schedule hereto …” [emphasis added]”’

34.  According to section 16(1) of the Conveyancing and Property Ordinance, Cap 219, as assignment operates to assign all rights and interests (including beneficial interest) from one party to another.  As such, in my view, the Assent has the effect of assigning both the legal and beneficial interest in the Property to the appellant and Alice.

35.  As cited by Mr Chang, the situation has been described by Macnaghten J in G.H.R. Co Ltd v Inland Revenue Commissioner [1943] 1 KB 303, at 305 as:

“In the present case, however, the property to which the assent relates became vested in the company by the assent and not by the vendor’s will, and, therefore, the reason given by Phillimore J for his decision in Kemp v Inland Revenue Commissioners is inapplicable.”

36.  I further agree with Mr Chang’s submission that the appellant, together with all the other beneficiaries to the Deceased’s estate, have no beneficial interest in the estate (including the Property in question) until the administration of the estate by the administrator by an assent.  This is a proposition which seems to have been accepted by the appellant.  Hence, it must follow that it was only through the Assent that the appellant and Alice acquired the legal and beneficial interest in the Property.

37.  I also agree with Mr Chang that Kemp can be distinguished from the present case in Kemp, the testator had left a will while the Deceased had died intestate in our present case.  As Mr Chang has pointed out, Phillimore J in that case held that, in the specific context of section 3(1) of the Land Transfer Act 1897 (which provided that a personal representative may assent to any device contained in a will), that it was the will, and not the assent by the executor, whereby the property was transferred to and vested in the device in the devisee within the meaning of section 62 of the Stamp Duty Act 1891:

“[The Attorney-General] says that the assent in writing of the executor operates to vest the property in the devisee. I am not sure that it does. I think the true view of the law is that it does not, and that the writing does not vest the property, but is merely evidence that the executor has no longer any claim upon the property, which really vests under the will of the testator.”

38.  In this respect, the laws in the UK have changed after the enactment of the Administration of Estates Act 1925 (which is equivalent to (“the PAO”)).

39.  Under section 66(2) of the PAO, it is the assent which operates to vest an immovable property onto a beneficiary under a will.  I therefore accept Mr Chang’s submission that the observation in Kemp that an assent does not vest a property to a devisee under a will is no longer applicable in Hong Kong (and in the UK).

40.  Mr Lau on the other hand submits that no beneficial interests in fact passed between the appellant and Alice on the one hand and their other siblings on the other hand.  In this regard, he relies heavily on s 27(5) of the Ordinance.

41.  Mr Lau submits that the respondent has failed to identify by who the 60% interest was “passed” to the appellant and Alice.  They say that there is no dispute that the Deed does not operate to effect any transfer when none of the siblings (beneficiaries) are entitled to any interest before the execution of the Assent.  Accordingly, they say that the 60% interest could not be “passed” or “transferred” by the other siblings (or beneficiaries) to the appellant and Alice.    

42.  With respect, I do not agree. I do not accept the appellant’s contention that the Assent was “no more than a commonplace assent completing the administration of the estate” and conveying no more than what the beneficiaries, ie the appellant and Alice are entitled to: (See §19 of appellant’s submission in reply).  In my view, this is inconsistent with Clause 1 of the Assent cited above which clearly stated that the document was meant to be used as an assignment, hence of conveyance, of transferring the 60% shares entitled to by the 3 other siblings to the appellant and Alice who was originally entitled to 40% of the Property under the intestacy law.

43.  I further reject the appellant’s submission that the 2^nd exemption under section 27(5), namely, that the conveyance or transfer was made under a trust should apply.  In my view, it is clear that the Assent in this case was not made under a will or trust like in Commissioner of Stamp Duties (Queensland) v Livingston [1965] AC 694 which the appellant relies on.  The facts in the case can be distinguished on the basis that whatever property came to the executor under a will virtute officii came to him in full ownership, without distinction between legal and equitable interests: (see pp707 B-708B in Livingston).   This is very different from the present case where the appellant and Alice’s original “share” of the entitlement of the Property came through the intestacy of the Deceased.

44.  In my judgment, the crux of this matter is whether there was a conveyance in this case. 

45.  In my view, the answer must be answered in the positive.  According to section 27(1), as long as it is operating as a voluntary disposition inter vivos, it is sufficient to amount to a conveyance. In my judgment, the Assent in this case must be considered as a conveyance as it conveys a substantial benefit on the appellant and Alice which otherwise they would not have been able to receive.  In my view, what they have gained as a result of the execution of the Assent was the extra 60% of the beneficial interest which was in excess of their original entitlement of 40% in aggregate under the applicable intestacy law.

46.  Given the above, I come to the view that the appellant’s primary contention that there was no beneficial interest in the Property passed under the Assent simply cannot be supported and is wrong as a matter of principle. 

47.  If any authority is required to support the conclusion I have reached above, I would like to refer to the recent case of my learned brother HH Judge MK Liu in So Kam Shing & So Kam Wai v The Collector of Stamp Revenue [2018] HKDC 503 where he held that an assent is deemed to be a conveyance operating as a voluntary disposition inter vivos insofar as the share in the estate inherited was in excess of the interest that one may inherit under the intestacy laws: See §§ 21-26.  I would respectfully follow the reasoning and conclusion reached by Judge Liu in that case.

48.  I would also like to refer to the Singaporean case of Tan Kay Thye v Commissioner of Stamp Duties [1991] 3 MLJ 150 where in a similar situation where the deceased died intestate, the Singapore High Court found on a similar provision under their Stamp Duties Act, namely, section 16(1) (which is equivalent to section 27(1) of the Ordinance), that while there was no valuable consideration for the partition as the equality money was not the consideration and therefore it was not a conveyance on sale, that section applies whenever there is a benefit arising as a result of inadequate consideration or any other circumstance.  It is significant to note that in that case, Chan Sek Keong J, after examining the English cases of Wigan Coal & Iron Co Ltd v Inland Revenue Commissioners [1945] 1 ALL ER 392 and Lap Shun Textiles Industrials Co Ltd v Collector of Stamp Revenue [1976] 1 ALL ER 833 (an appeal to the Privy Council from Hong Kong), held that the test on whether a substantial benefit has been conferred on the transferee is an objective test and that the intention of the parties is irrelevant.  I would respectfully agree with the above findings.

49.  I also find the comments made by Viscount Cave LC in Baker v Commissioner of Inland Revenue [1924] AC 270 at pp 275-276 (which was cited by Chan Sek Keong J in Tan Kay Thye, supra.) helpful:

“…a conveyance, although for value, comes within the sec-tion if it confers upon the grantee a substantial benefit beyond what that grantee gives, or (in other words) if it is in substance a gift to the person taking under it after allowing for any consideration which he brings in. In such cases the conveyance does confer a benefit – that is a gift – on the person to whom the conveyance is made, and to that extent is to be treated a as a voluntary disposition.”

50.  Based on the above authorities, I am of the opinion that it was correct for the respondent to impose the ad valorem stamp duty on the Assent in the circumstances of this case.

Whether section 29AL of the Ordinance applies?

51.  I do not consider that section 29AL of the Ordinance for a lower rate of ad valorem stamp duty applies in this case.   

52.  Although the appellant has not advanced any submission based on this section, for the sake of completeness, I would like to state that I do not consider this section applies in this case.

53.  To begin with, I think the appellant has rightly accepted that the transferor could not be the 3 renouncing beneficiaries.  I agree with Mr Chang that by executing the Deed, they had merely renounced their rights to inherit the Property.  I find that at no time did they have any beneficial interest in the Property which was capable of being transferred to the appellant and Alice.

54.  Further, I find that the appellant herself could not be the transferor within the meaning of section 29AL of the Ordinance.  In this respect, I agree with the respondent that the appellant acting in her capacity as administratrix in executing the Assent did not hold any interest over the estate of the Deceased which she could in her personal capacity transfer to herself and Alice: see Williams, Mortimer and Sunnucks on Executors, Administrators and Probate at §35-09 at p 561.     

55.  In the aforestated premises, I find that section 29AL does not apply.  As such, I find that the ad valorem stamp duty on the Assent should be charged at Scale 1 of Head 1(1) in the First Schedule to the Ordinance, ie at the higher rate.  The applicable amount of stamp duty under the higher rate is at $16,650.       

CONCLUSION

56.  To conclude, for the 2 questions posted in the Case Stated, my findings are as follow:

(1)   Whether the Deed and the Assent are chargeable with ad valorem stamp duty?

Yes, on the Assent but not the Deed

(2)   If so, with what amount of stamp duty it is chargeable?

$16,650

57.  In the aforestated premises, I would dismiss the appellant’s appeal with costs in favour of the respondent, with certificate for counsel.

58.  Lastly, I would like to thank counsel on both sides for their helpful assistance.