ARROWTOWN ASSETS LTD. v. THE COLLECTOR OF STAMP REVENUE

DCSA52/2000

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H E A D N O T E

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SWS owned a piece of land. It entered into a non-binding agreement with the Government for the surrender of the land and regrant of land for residential development at a premium. NT and Swire, which together beneficially owned CS, were interested in participating in developing the regranted land. SWS thus entered into a Heads of Agreement which was then replaced by a Share Sale Agreement with CS, NT and Swire ("arrangement"). Pursuant to the same, SWS formed 4 wholly-owned BVI subsidiary companies, EV, SC, PP and AT, in a straight line, each company owning 100% of the issued capital of the next one in the line, with SWS being the ultimate holding company at one end and AT being the last subsidiary company at the other end. Under the arrangement, SWS agreed to re-organise the share capital of PP into 1,000 ordinary 'A' shares and 100,000 non-voting and non-participating deferred 'B' shares, and cause SC to sell 980 'A' shares to CS for a cash price. Part of the sale price was to be used to pay the premium for the land exchange. It was a condition precedent to the sale of shares that the land after the exchange be transferred by SWS to AT in consideration of a price represented by a Loan Note issued by AT in favour of SWS. Further, under the arrangement, SWS had to assign the Loan Note to EV, EV to SC, and SC to PP. Upon completion, SWS had to deliver to CS a Deferred Consideration Agreement ("DC Agreement") signed by SWS and AT whereby AT agreed to pay as deferred consideration for the transfer of the land 12% of the surplus proceeds, if any, arising from the intended development of the land and the sale of the units therein, as well as a Shareholders Deed governing the inter-relationships of SWS, SC, CS, NT and Swire relating to PP and AT, as SC and CS were to become co-shareholders of PP.

The share capital of PP was reorganised and various transactions were carried out pursuant to the arrangement. As a result, SWS was paid the cash price for the sale of shares, part of which was utilised to pay the land exchange premium. The land exchange was completed, and by a Memorandum of Agreement and Assignment the regranted land was assigned by SWS to AT. The Loan Note was issued by AT in favour of SWS, which was eventually assigned to PP. 980 out of 1,000 'A' shares in PP (which had become the direct owner of the Loan Note and the indirect owner of the land through AT) were transferred to CS, which thus obtained the effective or de facto control and ownership of PP, notwithstanding that SC still remained the owner of 100,000 deferred 'B' shares that were non-voting and non-participating. SWS was also entitled to receive 12% of the surplus proceeds from the successful development of the regranted land by CS, NT and Swire, through PP and AT, as per the DC Agreement. Their rights inter se as shareholders of PP were governed by the new articles of PP and the Shareholders Deed.

SWS and AT claimed that the transfer of the regranted land by SWS to AT was an intra-group transfer of property, the stamp duty relief provisions in s.29H(3) and s.45 of the Stamp Duty Ordinance (Cap.117) applied, and therefore the instruments effecting the transfer, i.e. the Memorandum of Agreement and Assignment were not chargeable with ad valorem stamp duty. It argued that SWS and AT were and remained "associated" bodies corporate qualifying for intra-group relief because notwithstanding the sale of the 980 controlling 'A' shares in PP, SWS still indirectly owned over 90% "issued share capital" of the transferee, AT, in terms of the qualifying requirement in s.45(2).

The Collector of Stamp Revenue disagreed. First, part of the "consideration for the transfer of land", i.e. the DC Agreement to which CS was a party and the Shareholders Agreement to which CS, NT and Swire were parties, were "provided" by non-associated parties, thereby infringing the anti-avoidance provisions in s.45(4)(a). Second, the Loan Note, which formed part of the consideration for the transfer of land, was under the arrangement, to be "parted with" by SWS to EV, "in consequence of the carrying out of a transaction" involving a payment by a non-associated entity, namely, the payment of the price by CS for the purchase of the shares. The "transaction" was either the arrangement or the payment of the further deposit for the purchase of shares by CS in return for undertakings by SWS' solicitors to use the money to pay the land premium etc. All this infringed the anti-avoidance provisions in s.45(5). Third, the Collector argued that by an application of the Ramsay principle, the allotment of the 100,000 'B' shares in PP to SC which served only a fiscal purpose to preserve the superficial association required by s.45(2) after the sale of 980 controlling 'A' shares to CS should be disregarded, leaving the "end result" that after the sale of shares, PP and AT, the transferee, were no longer "associated" companies of SWS, the transferor, for the purpose of claiming relief under s.45(2). It was also argued that given the very restricted and illusory rights attached to the 'B' shares, they were not "shares" at all for the purpose of identifying the "issued share capital" of PP under s.45(2), and therefore SWS was no longer associated with AT after the transfer of land and sale of shares. It was further argued that using the Ramsay approach (as most recently developed by the House of Lords in Macniven v Westmoreland Investments [2001] 2 WLR 377), "consideration for the transfer" of land under s.45(4)(a) comprised the DC Agreement and Shareholders Deed, giving the phrase a wider commercial meaning in preference to the more restrictive meaning given to it by the majority in the older House of Lords decision Shop and Store v CIR [1967] AC 472.

The Collector accordingly assessed stamp duty on the Memorandum of Agreement as the principal instrument, at $349,658,565, against which assessment AT brought the present appeal by way of case stated pursuant to s.14 of the Ordinance.

Held, dismissing the appeal with costs, that:

(1) Identification of the consideration for the transfer of the land was a question of fact, but it also involved questions of law in the construction of documents. Phillips v Brewin Dolphin Bell Lawrie Limited [2001] 1 WLR 143 followed.

(2) "Consideration" in s.45(4)(a) means "consideration for the transfer", not "consideration for the arrangement", but depending on the facts, the two need not be mutually exclusive and may overlap with each other. Majority decision in Shop and Store explained and followed.

(3) The DC Agreement formed part of the consideration for the transfer of the land. It was signed by CS as part of the arrangement. CS made promises in favour of SWS either under clause 14 of the DC Agreement or the whole agreement relating to SWS' right to receive the 12% surplus proceeds as deferred consideration for the transfer of land. The taxpayer could not subsequently go back on the allocation of consideration and seek to re-allocate the same for tax purposes. E V Booth (Holdings) v Buckwell (Inspector of Taxes) [1980] STC 578 applied. As CS was a non-associated entity, part of the consideration for the transfer of land was "provided" by a non-associated entity under the arrangement, thereby infringing s.45(4)(a).

(4) The Shareholders Deed, which was said to contain important provisions guaranteeing, protecting, safeguarding, enhancing or entrenching SWS' right to receive the deferred consideration under the DC Agreement, did not form part of the consideration for the transfer of land, but rather the sale of shares under the arrangement. The Collector could not go behind the consideration agreed by the parties in the documents in the absence of dishonesty or lack of straightforwardness. Stanton (Inspector of Taxes) v Drayton Commercial Investment Co. Ltd. [1982] STC 585 applied. Nor did CS, NT and Swire, by executing the Shareholders Deed, indirectly provide part of the consideration for the transfer of land. Curzon Offices v IRC [1944] 1 All ER 163, [1944] 1 All ER 606 (CA), explained and distinguished.

(5) Under s.45(5), the consideration may have been "parted with" to an associated company instead of an outsider, and an "arrangement" may have been at the same time a "transaction"; and this was such a case. The Loan Note, being part of the consideration for the transfer of land, was, under an arrangement contained in or evidenced by the Heads of Agreement as replaced by the Share Sale Agreement, to be "parted with" to EV, "in consequence of the carrying out of" a "transaction", namely, the arrangement itself, involving a payment by CS, a non-associated company, of the price for the sale of shares, thereby infringing s.45(5).

(6) However, it was too artificial on the facts to call the payment of the further deposit for the purchase of shares and the giving of undertakings in return a "transaction" in consequence of the carrying out of which the Loan Note was to be parted with under the arrangement.

(7) The Ramsay approach, as explained by Macniven, had no application in the present case, even though it may apply to stamp duty legislation in an appropriate case. The relevant statutory "concept" employed by s.45(2) was "associated body corporate" which was in turn defined by another "concept", namely, "issued share capital", both being "legal" concepts which had no broader commercial meanings. The Ramsay approach was not applicable to such legal concepts and therefore the allotment of the 'B' shares could not be disregarded as serving no commercial (other than fiscal) purpose. Macniven followed. In any event, regardless of whatever intermediate steps with no commercial purpose that could be disregarded, the 'B' shares would still be there and could not be disregarded. SWS and AT would still remain "associated" companies without a radical re-characterisation or re-constitution of the 'B' shares, which would not be permissible even under the classic Ramsay formulation. Shiu Wing v Commissioner of Estate Duty [2000] 3 HKLRD 76 followed.

(8) The 'B' shares were shares, albeit with very restricted rights, within the meaning of a "share" as defined in Borland Trustee v Steel Brothers & Co., Ltd. [1901] 1 Ch 279, 288, and there was no justification to disregard them in identifying the "issued share capital" of PP for the purpose of s.45(2).

(9) Macniven did not conflict with the majority decision in Shop and Store which already construed "consideration for the transfer" as a commercial concept. Macniven did not call for a departure from the majority's construction of the term in Shop and Store at all.

FOR REFERENCE

DCSA 52/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP DUTY APPEAL NO.52 OF 2000

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J U D G M E N T

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Introduction

1. This is an appeal by way of case stated brought by the Appellant, Arrowtown Assets Limited ("Arrowtown"), from an Assessment and Demand for payment of stamp duty in the sum of $349,658,565 said to be chargeable on a Memorandum of Agreement dated 22nd April 1997 made by the Collector of Stamp Revenue, the Respondent in this appeal, pursuant to section 14 of the Stamp Duty Ordinance (Cap. 117).

2. The basic facts, documents and transactions involved in the present case are not in dispute, but the true nature, construction and legal consequences of the documents and transactions are. The basic facts are set out in the Case Stated and all relevant copy documents are before me by way of Exhibits to the Case Stated prepared and filed by the Collector as part of the appellate procedure in this appeal. No oral or further evidence was adduced or relied on at the hearing of the appeal.

3. I shall first give an outline of the basic facts and transactions involved by way of an introduction. I shall return to the relevant details of the documents and transactions when I come to deal with the various legal issues and arguments raised in this appeal. At all material times prior to 22nd April 1997, Shiu Wing Steel Limited ("Shiu Wing") was the registered owner of Lot No.1066 in S.D. 3, Extension to Lot No.1066 in S.D. 3, and Extension to Lot No.1066 and Extension thereto in S.D. 3, having a total area of approximately 539,790 square feet. By the end of 1996, Shiu Wing came to a non-binding agreement with the Government for the surrender of the properties and the regrant of a piece of land to be known as Tseung Kwan O Town Lot No.55 having an area of approximately 50,145.40 square metres ("Development Land"), for the development of the same for non-industrial purposes, at a premium of $5,853,000,000 payable by Shiu Wing to the Government. The (non-binding) agreement was no doubt entered into by the parties in line with the Government's policy of developing Tseung Kwan O into a new town.

4. Both the Sun Hung Kai Properties group and Swire group were interested in participating in the development of the Development Land, and no doubt as a result of much negotiation between the parties, a Heads of Agreement dated 3rd January 1997 ("Heads of Agreement") was signed between Shiu Wing, New Town (N.T.) Properties Limited ("New Town") (a company within the Sun Hung Kai Properties group), Swire Properties Limited ("Swire"), and Calm Seas Developments Limited ("Calm Seas") (a BVI company apparently used by New Town and Swire to acquire through a chain of subsidiary companies a share in the intended development of the Development Land). Under this agreement, Shiu Wing was to form two wholly-owned subsidiary companies, one holding 100% of the issued share capital of the other in a linear fashion, and Calm Seas was to buy from Shiu Wing's immediate subsidiary company 98% of the entire issued share capital (i.e. 980 out of 1,000 ordinary shares) of the ultimate subsidiary company in the chain for $12,460,559,737. As a condition precedent for the completion of the sale and purchase of the shares, Shiu Wing had to assign the Development Land (after the surrender and regrant) to the ultimate subsidiary company in the chain for $12,714,856,874. Upon completion, Shiu Wing had to deliver to Calm Seas a signed agreement between Shiu Wing and the ultimate subsidiary company to which the Development Land was to be assigned whereby the latter was to pay as deferred consideration to Shiu Wing 12% of the surplus proceeds (if any) arising from the sale of residential units intended to be erected on the Development Land as part of the intended development thereof.

5. Under the Heads of Agreement, the consideration for the sale of shares was to be paid by instalments by Calm Seas. A deposit and part payment of $1,869,083,960 was paid upon the signing of the agreement. A further deposit and part payment of $5,853,000,000, equivalent to the amount of the land premium, was to be paid by means of a cashier order in favour of the Government, which was to be used by Shiu Wing for payment of the premium upon the execution of the surrender and regrant (i.e. the land exchange). The balance payment of $4,738,475,777 was to be paid by Calm Seas to the first subsidiary company in the chain immediately held by Shiu Wing upon completion.

6. New Town and Swire signed the Heads of Agreement as guarantors each guaranteeing to Shiu Wing the due and punctual payment of 50% of all monies payable by Calm Seas under the agreement and the due performance of 50% of Calm Seas' obligations under the agreement up to and including completion but not thereafter.

7. The Heads of Agreement also provided expressly and specifically that the parties would use their respective best endeavours to agree and co-operate with each other to formulate optimum structures so as to minimise the liability for stamp duty on the transfer of the shares, the assignment of the Development Land and any profits tax which might be payable as a result of the development, and in particular Shiu Wing should agree to such structures as might be advised by Calm Seas' tax advisers to structure the ultimate subsidiary company (the shares of which were to be sold) as an associated company of Shiu Wing within the meaning of section 45 of the Stamp Duty Ordinance by the holding of non-voting and non-participating deferred shares in the ultimate subsidiary company, and to the application for relief from ad valorem stamp duty under section 45 (clause 8). The Heads of Agreement also provided that the parties should use their respective best endeavours to conclude a further agreement which should contain modifications to the structure contained in the agreement to reflect optimum tax structures (clauses 7.1 and 7.2(B)). This set the scene for what was to happen which eventually led to this appeal.

8. At this introductory stage, it is sufficient for me simply to say that under the stamp duty legislation, the intended assignment of the Development Land, which was to be developed for residential purposes and was to be regarded as a residential property for the purpose of the legislation, would, but for any applicable exemption or relief provisions, attract the payment of a huge amount of ad valorem stamp duty (at the rate of 2.75% of the consideration) on the instrument effecting the assignment or any preceding written sale and purchase agreement of the Development Land. And section 45 provides relief from stamp duty to an instrument effecting an intra-group transfer of property not involving any outside third party but only "associated" companies within the same group as defined by the section. It contains built-in anti-avoidance provisions dealing with attempts to make use of the relief provisions when in fact an outside third party was directly or indirectly involved in the transfer. The reference in the Heads of Agreement to structuring or restructuring the share capital and shareholdings of the ultimate subsidiary company so as to remain an associated company of Shiu Wing after the sale of shares was clearly aimed at the relief available under section 45 and the anti-avoidance provisions contained in the section.

9. It is also convenient to mention at this juncture that so far as the intended sale of 98% of the issued share capital of the ultimate subsidiary company to Calm Seas was concerned, this would not attract any local stamp duty as the ultimate subsidiary company was to be a BVI company.

10. No doubt pursuant to the Heads of Agreement, the initial deposit was paid by Calm Seas to Shiu Wing. Further, subsidiary companies were formed by Shiu Wing, namely, Eastview Holdings Limited ("Eastview"), Super Charge Development Limited ("Super Charge"), Prepared Holdings Limited ("Prepared"), and Arrowtown, the Appellant in this appeal, each holding 100% of the issued share capital of the next one in a straight line, with Shiu Wing as the parent company at the one end and Arrowtown as the ultimate subsidiary company at the other.

11. And again no doubt through further negotiations as required by the Heads of Agreement and pursuant to tax advice, a Sale and Purchase Agreement dated 7th April 1997 ("Share Sale Agreement") was entered into by Shiu Wing, Calm Seas, New Town and Swire to replace the Heads of Agreement. The Share Sale Agreement basically followed but also varied and developed the main theme of the Heads of Agreement. So instead of Shiu Wing incorporating two subsidiary companies to form a chain of subsidiary companies, the Share Sale Agreement recited that Shiu Wing had incorporated four subsidiary companies (as aforesaid), and provided that Shiu Wing should procure the sale of 980 'A' ordinary shares of Prepared ("Sale Shares") by Super Charge in favour of Calm Seas. The sale price remained unchanged, and the payment method remained unchanged save that the initial deposit that had already been paid pursuant to the Heads of Agreement was treated as a deposit and part payment under the new agreement. And completion was still to be conditional upon the assignment of the Development Land by Shiu Wing to Arrowtown, the ultimate subsidiary company, at the same price as provided in the Heads of Agreement, and upon completion Shiu Wing had to deliver to Calm Seas a signed agreement between Shiu Wing and Arrowtown for the payment of deferred consideration, the terms of which were contained in a schedule to the Share Sale Agreement.

12. What was important and new was that the Share Sale Agreement provided specifically that Shiu Wing agreed to effect a reorganisation of Super Charge and its immediate subsidiary company Prepared whereby, inter alia, Prepared's authorised share capital would change from US$50,000 divided into 50,000 shares of US$1 each to HK$1,010 divided into 1,000 'A' shares of HK$0.01 each and 100,000 non-voting and non-participating deferred 'B' shares of HK$0.01 each, and its issued share capital from 1 share of US$1 per share to 1,000 'A' shares and 100,000 'B' all of HK$0.01 each, all to be owned beneficially by Super Charge. And the subject matter of the sale and purchase of shares under the Share Sale Agreement became 980 'A' registered shares comprising 98% of the issued 'A' share capital only, instead of 98% of the entire issued share capital of the company as originally provided by the Heads of Agreement. A draft of the new Articles of Association of Prepared was annexed to the Share Sale Agreement.

13. At this stage, it is sufficient to note that unlike the 'A' shares, the holder of 'B' shares would have no voting rights, would not be entitled to any participation in the profits or assets of the company, would have a right to a fixed non-cumulative dividend at the rate of 5% per annum for any financial year in respect of which the net profits of the company should exceed $1 million billion (!), and on a winding up would be entitled to participate in the assets of the company after the distribution to the holders of every other class of shares in the capital of the company of assets on liquidation or otherwise in the total sum of $1,000 billion per share (other than the 'B' shares) held by them (article 3.3(A) and (B)). Furthermore, the company could at any time purchase all or any part of the 'B' shares for an aggregate sum of $1,000 (article 3.3(C)). The holder of 'B' shares would have a right to appoint one person as a director of the company or Arrowtown (article 19.1).

14. Furthermore, the Share Sale Agreement specifically provided that the consideration of $12,714,856,874 (called an "initial consideration" in the Share Sale Agreement) payable for the assignment of the Development Land by Arrowtown, the ultimate subsidiary company/transferee, to Shiu Wing, was to be left outstanding as a debt due to Shiu Wing (called a "Loan" in the Share Sale Agreement), that Shiu Wing should assign the Loan to its immediate subsidiary company Eastview in consideration for the issue of shares in Eastview, that Shiu Wing should procure Eastview to likewise assign the Loan to its immediate subsidiary company Super Charge in consideration for the allotment of 999 ordinary shares in Super Charge, that Shiu Wing should then procure Super Charge to in turn assign the Loan to its immediate subsidiary company Prepared in consideration for the issue of 999 'A' shares and 100,000 'B' shares in Prepared, so that Super Charge would become the owner of a total of 1,000 'A' shares and 100,000 'B' shares in Prepared, out of which 980 'A' shares would be sold to Calm Seas upon completion as aforesaid. The Loan Note was to stay with Prepared.

15. After completion, Super Charge and Calm Seas would become fellow shareholders of Prepared. And in this regard, the Share Sale Agreement specifically provided that Shiu Wing had to deliver to Calm Seas upon completion of the sale and purchase of the Sale Shares a Shareholders Deed between Shiu Wing, Super Charge, Calm Seas, New Town and Swire (clause 5.3(A)(6)), a draft of which was annexed to the Share Sale Agreement.

16. Under the draft Shareholders Deed, it was provided that Calm Seas should have the right to appoint all the directors of Prepared and Arrowtown with the exception that the holder of the 'B' shares should have the right to appoint one person as a director of the company and Arrowtown, that matters arising at any meeting of the board of Prepared, Arrowtown and any subsidiary companies should be determined by a majority of votes, and that the quorum for meetings of the board should be two directors which had to comprise the director appointed by the holder of the 'B' shares. The Deed also provided that the business of Prepared and Arrowtown should be confined to the development of the Development Land, Calm Seas should be responsible for the provision of finance to Prepared and Arrowtown for the operation of their business, the general nature of the business of Prepared and Arrowtown should not be changed, no change should be made in the authorised or issued share or loan capital of the two companies, no alterations should be made in the Memorandum or Articles of Association of the two companies, no new interest in the two companies should be created or conferred on any person whether in the form of shares or otherwise, and no arrangement for sharing income or profits should be entered into with any person by any of the two companies. There were also elaborate provisions in the draft deed governing the transfer of shares by Super Charge and Calm Seas respectively, and by Shiu Wing, New Town or Swire respectively, and the transfer of Shiu Wing's right to the deferred consideration under the deferred consideration agreement between Shiu Wing and Arrowtown.

17. Under the Share Sale Agreement, Calm Seas agreed that as the "majority shareholder" of Prepared it would co-operate in completing the development of the Development Land through Arrowtown using a certain residential development in Tuen Mun as the benchmark in accordance with the terms of the Shareholders Deed (clause 6.1).

18. The Share Sale Agreement provided that all stamp duties payable in respect of the assignment of the Development Land should be borne by Arrowtown whereas that in respect of the transfer of the Sale Shares by Calm Seas (clause 10.2).

19. The Share Sale Agreement was, like the Heads of Agreement, executed by New Town and Swire as guarantors in similar terms as before (clause 14).

20. Pursuant to the Share Sale Agreement, a board meeting was held and board resolutions were passed and adopted on 21st and 22nd April 1997 to amend the Memorandum and Articles of Association of Prepaid to effect the reorganisation of the share capital of and the creation of two classes of shares in the company as described above.

21. Further, pursuant to the Share Sale Agreement, a number of transactions took place on 22nd April 1997:

(a) Calm Seas paid to Shiu Wing the further deposit and part payment for the purchase of the Sale Shares in the sum of $5,853,000,000 which was utilised by Shiu Wing for payment of the premium to the Government to effect the land exchange.

(b) Formal documents effecting the land exchange between Shiu Wing and the Government were executed upon the payment of the premium whereby Shiu Wing became the registered owner of the Development Land.

(c) A Memorandum of Agreement ("Memorandum of Agreement") was signed between Shiu Wing and Arrowtown whereby Shiu Wing agreed to assign the Development Land to Arrowtown for the price of $12,714,856,874.

(d) A Deferred Consideration Agreement ("DC Agreement") between Shiu Wing, Arrowtown, Super Charge, Prepared and Calm Seas was signed whereby Arrowtown agreed to pay as deferred consideration for the Development Land 12% of the surplus proceeds, if any, arising from the development of the Development Land to Shiu Wing.

(e) An Assignment of the Development Land was executed by Shiu Wing in favour of Arrowtown in consideration of the price of $12,714,856,874 ("Assignment").

(f) A Loan Note Instrument and a Loan Note Certificate for the sum of $12,714,856,874 (collectively "Loan Note") were executed by Arrowtown in favour of Shiu Wing representing the price paid for the assignment of the Development Land.

(g) An Assignment of the Loan Note was executed by Shiu Wing in favour of Eastview in return for an allotment of shares in Eastview.

(h) An Assignment of the Loan Note was executed by Eastview in favour of Super Charge in return for an allotment of shares in Super Charge.

(i) An Assignment of the Loan Note was executed by Super Charge in favour of Prepared in return for an allotment of 900 'A' ordinary shares and 100,000 'B' ordinary shares in Prepared. (This was slightly different from what was provided in paragraph 4(C) of Schedule 3 to the Share Sale Agreement due to the way the share capital of Prepared was actually reorganised on 21st and 22nd April 1997 as mentioned above, but the result was the same, namely, that Super Charge became the owner of 1,000 'A' shares and 100,000 'B' shares in Prepared.)

(j) An Instrument of Transfer whereby Super Charge sold and transferred 980 'A' shares in Prepared to Calm Seas for $12,460,559,737 was executed.

(k) The final instalment payment for the sale of shares in the sum of $4,738,475,777 was paid by Calm Seas to Shiu Wing on behalf of Super Charge, as acknowledged by a letter dated 22nd April 1997 written by Shiu Wing to Calm Seas and Super Charge.

(l) A Shareholders Deed between Shiu Wing, Super Charge, Calm Seas, New Town and Swire relating to the operation of Prepared and Arrowtown was executed ("Shareholders Deed").

22. Pausing here, as an immediate result of what happened on 21st and 22nd April 1997, Arrowtown became the registered owner of the Development Land, Calm Seas (and behind it New Town and Swire) obtained the effective control and ownership of Arrowtown through its 98% ownership of the issued 'A' share capital of Prepared which wholly owned Arrowtown (Super Charge's 100,000 'B' shares in Prepared being non-voting and non-participating deferred shares), whereas Shiu Wing and Super Charge received (inclusive of the initial deposit received earlier) a total of $12,460,559,737 part of which was used by Shiu Wing to pay the premium for the land exchange to the Government. Moreover, Shiu Wing was also entitled to share in the surplus proceeds, if any, arising from the development of the Development Land by Arrowtown pursuant to the DC Agreement. Further, the interrelationship of Super Charge (which still remained a wholly-owned subsidiary of Shiu Wing through Eastview) and Calm Seas as co-shareholders of Prepared was governed by the Shareholders Deed which regulated the operation of Prepared and Arrowtown and the development of the Development Land.

23. As mentioned above, the sale of the 'A' shares in Prepared by Super Charge to Calm Seas did not attract any local stamp duty because Prepared was a BVI company. The focus of attention was on the stamp duty potentially chargeable on the instruments effecting the assignment of the Development Land by Shiu Wing to Arrowtown.

24. In this regard, as was required by the Ordinance, on 23rd April 1997, Shiu Wing's solicitors (on behalf of their client and presumably Arrowtown) presented the Memorandum of Agreement, the Assignment and the DC Agreement to the Collector for adjudication and stamping, and applied for stamp duty relief pursuant to sections 29H(3) and 45(1) and (2) of the Ordinance. The application for stamp duty relief was supported by a statutory declaration made by Mr. Frank Pong Fai, a director of Shiu Wing, on 22nd April 1997. The basis of the claim for relief under section 45 was that the transfer of the Development Land under the Memorandum of Agreement and the Assignment was an intra-group transfer, the consideration for the transfer was not provided by any outsider, and the companies involved had been, remained, and were intended to remain associated companies within the meaning of section 45, notwithstanding the transfer of 980 'A' shares in Prepared to Calm Seas. No arrangement as described in section 45(4) or (5) (i.e. the built-in anti-avoidance provisions) was involved.

25. The Collector, however, was not so satisfied, and considered that the transactions in question were caught by the anti-avoidance provisions in section 45(4) and (5) of the Ordinance. The Collector therefore concluded that the claim for relief under section 45 failed. He took the view that the Memorandum of Agreement and the DC Agreement were two instruments which together constituted the agreement for sale of the Development Land, that the DC Agreement was not chargeable with stamp duty because it was not the principal instrument, and that the Memorandum of Agreement, being the principal instrument, was chargeable with stamp duty. However, as the amount of the deferred consideration was not ascertainable even though the right to it under the DC Agreement constituted part of the consideration for the transfer, the Memorandum of Agreement was chargeable with stamp duty by reference to the initial consideration of $12,714,856,874 only, resulting in an assessment of stamp duty of $349,658,565. As the Memorandum of Agreement was so assessed with payment of ad valorem stamp duty, the Assignment was not chargeable with ad valorem stamp duty. An Assessment was accordingly made on 27th November 2000, and by a Notice of Appeal dated 27th December 2000, an appeal against the assessment was brought to this Court on the ground that the assessment was wrong. The stamp duty assessed by the Collector was paid by Arrowtown in the meantime.

26. In the Case Stated, the Collector, as required by section 14 of the Ordinance, submitted the following question for the opinion of this Court, namely, whether the Collector was correct in rejecting Arrowtown's claim for exemption from stamp duty under sections 29H(3) and 45 of the Ordinance.

27. I should perhaps for the sake of completeness add that on 25th August 1997, Arrowtown obtained a syndicated loan facility for the amount of $7,000,000,000 and executed finance documents including a loan agreement between Arrowtown as borrower, Sun Hung Kai Properties Limited and Swire as guarantors, and a consortium of financial institutions as coordinating arrangers. The loan so obtained was applied in part repayment of the Loan Note held by Prepared, leaving a balance of $5,714,856,874 still outstanding.

28. I should also add that counsel told me during submission that apparently as a result of the sharp economic and property market downturn since late 1997, the development of the Development Land may not turn out to be as successful as it must have been originally hoped, no deferred consideration has been paid by Arrowtown to Shiu Wing pursuant to the DC Agreement and none is expected to be payable in future either.

Sections 29H(3) and 45: Intra-group transfer relief

29. It is common ground that if no relief provisions apply in the present case, the Memorandum of Agreement will be chargeable with stamp duty pursuant to the provisions in section 4(1) and Part IIIA (dealing with agreements to sell immovable property) of the Stamp Duty Ordinance and the First Schedule thereto.

30. Section 29H(3) in Part IIIA of the Ordinance provides the relevant relief relied on in the following terms:

"(3) If a conveyance on sale executed in conformity with a chargeable agreement for sale (within the meaning of section 29D(6)(c)) would not, by virtue of section 45, be chargeable with stamp duty under head 1(1) in the First Schedule -

(a) the agreement for sale is not chargeable with stamp duty under head 1(1A) in the First Schedule; and

(b) section 45(3) and (5A) applies to the agreement for sale in the same manner as it applies to a conveyance on sale."

31. Section 45(1) and (2) of the Ordinance in turn sets out the relief from stamp duty thus:

"(1) Stamp duty under head 1(1), 2(1) and 2(3) in the First Schedule shall not be chargeable on an instrument to which this section applies.

(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."

32. Pausing here, it should be noted that sections 29H(3) and 45(1) and (2) combine to provide relief in relation to an agreement for sale pursuant to which a residential property was conveyed from one associated body corporate to another. This is done in a slightly convoluted way by requiring the conveyance on sale (i.e. the assignment) to be one which would not, by virtue of section 45, be chargeable with stamp duty. If it would not, then the agreement for sale would not be chargeable with ad valorem stamp duty either. So in other words, in order to see whether an agreement for sale is chargeable with stamp duty, one needs to inquire whether the assignment executed pursuant to the agreement would or would not be chargeable with stamp duty by virtue of section 45.

33. Section 45, however, begins not by telling its reader what would be chargeable with stamp duty under the section, but rather that an instrument to which the section applies shall not be chargeable with stamp duty. In subsection (2), it defines the instrument as one the effect of which "is to convey a beneficial interest in immovable property" from one associated body corporate to another.

34. Whilst one may query rather pedantically whether an assignment executed pursuant to an agreement for sale, instead of the agreement for sale, is an instrument the effect of which "is to convey a beneficial interest in immovable property" from the assignor to the assignee (see for instance Escoigne Properties Limited v Inland Revenue Commissioners [1958] AC 549), for all purposes of this appeal, neither side disputed that the Assignment dated 22nd April 1997 between Shiu Wing and Arrowtown assigning the Development Land from Shiu Wing to Arrowtown should be regarded as such an instrument, effecting a conveyance of a beneficial interest in the Development Land from Shiu Wing to Arrowtown.

35. Subsection (2) only applies to a conveyance between two "associated" bodies corporate, defined by reference to beneficial ownership of not less than 90% "issued share capital" either by one of another, or by a third body corporate of each. And subsection (6) provides that ownership may be direct or through another body corporate or bodies corporate, and the Third Schedule provides further and elaborate provisions in determining such beneficial ownership. Subsections (4)(c) and (5A) (reproduced below) further require the association between the transferor company and transferee company to remain for at least 2 years after the transfer of property. In short, section 45 (1) and (2) provides what is commonly known as intra-group transfer relief. As Lord Reid explained in Shop and Store Developments Limited v Commissioners of Inland Revenue [1967] AC 472, 489G, a decision of the House of Lords which I will have to return to below,

"As I understand it the reason for this 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."

36. In those circumstances, Arrowtown's claim for relief from stamp duty is relatively simple and straightforward, at least up to subsection (2) of section 45. Its case is simply that Shiu Wing and Arrowtown were at the time of the assignment of the Development Land two associated companies within the meaning of the section, and they remained so after the assignment. At the time of the assignment, Shiu Wing through its wholly-owned subsidiaries, namely, Eastview and Super Charge, owned the entire issued 'A' and 'B' share capital of Prepared which in turn owned the whole of the issued share capital of Arrowtown. After the sale of the Sale Shares, Shiu Wing through Eastview and Super Charge was still the beneficial owner of 20 'A' shares and 100,000 'B' shares out of 1,000 issued 'A' shares of $0.01 each and 100,000 issued 'B' shares of $0.01 each in Prepared, which continued to own the entire issued share capital of Arrowtown, the transferee. In other words, according to the provisions in section 45(2) and (6) and the Third Schedule, Shiu Wing was the beneficial owner of 99.03% of the "issued share capital" of Arrowtown, satisfying the definition of "associated" bodies corporate in section 45. This is so notwithstanding that 980 'A' shares, amounting to 98% of the issued 'A' share capital of Prepared had been sold by Super Charge to Calm Seas, an outside company, which shares, unlike the 'B' shares, were voting, participating and non-deferring ones. In other words, notwithstanding that the real and effective control as well as ownership of one of the so-called associated bodies corporate, namely, Prepared, have really passed into the hands of an outsider, namely, Calm Seas, Arrowtown says its case is still within section 45(2), given how "associated" bodies corporate are defined. So unless the Collector manages to do something by way of statutory construction or otherwise with the definition of "associated" bodies corporate in the subsection or more particularly the defining term "issued share capital", Arrowtown's case will, admittedly, fall within section 45(2), unaffected by subsections (4)(c) and (5A). This the Collector has in this appeal sought to do by praying in aid the so-called Ramsay doctrine or approach, forming one of the main issues argued before me in this appeal.

37. Satisfying the requirements under section 45(2) is necessary but not sufficient for Arrowtown's purpose. For section 45 goes on to make anti-avoidance provisions in subsections (4), (5) and (5A) as follows:

"(4) This section shall not apply to any instrument unless it is also shown to the satisfaction of the Collector that the instrument was not executed, or the sale or purchase of the Hong Kong stock was not made, in pursuance of or in connexion with an arrangement under which -

(a) the consideration, or any part of the consideration, for the conveyance, transfer, sale or purchase was to be provided or received, directly or indirectly by a person other than a body corporate which at the time of the sale or purchase, or of the execution of the conveyance or transfer, was associated within the meaning of subsection (2) with either the transferor or the transferee (meaning respectively, the body corporate from whom and the body corporate to whom the beneficial interest was conveyed or transferred, or the Hong Kong stock was purchased or sold);

(b) the said interest was previously conveyed, transferred, purchased or sold, directly or indirectly, by such a person; or

(c) the transferor and the transferee were to cease to be associated within the meaning of subsection (2) by reason of a change in the percentage of the issued share capital of the transferee in the beneficial ownership of the transferor or a third body corporate.

(5) Without prejudice to the generality of paragraph (a) of subsection (4), an arrangement shall be treated as within that paragraph if it is one under which the transferor or the transferee, or a body corporate associated with either as there mentioned, was to be enabled to provide any of the consideration, or was to part with any of it, by or in consequence of the carrying out of a transaction or transactions involving, or any of them involving, a payment or other disposition by a person other than a body corporate so associated.

(5A) Where a transferor and transferee, as described in subsection (4), cease to be associated as described in subsection (4)(c) within 2 years after the date of execution of the instrument or, in the case of contract note, within 2 years after the date on which the note was required to have been made and executed under section 19, and relief from stamp duty has been claimed under this section-

(a) the transferor and transferee shall notify the Collector of that fact and of the date of the cessation within 30 days after the date of the cessation;

(b) any pending claim for relief from stamp duty under this section in relation to the instrument shall be deemed to be denied;

(c) if any relief from stamp duty has been granted by the Collector under this section, the transferor and transferee are liable or jointly and severally liable, as the case may be, to pay to the Collector, within 30 days after the date of the cessation, by way of stamp duty an amount equal to the stamp duty which would have been chargeable on the instrument as if no relief from stamp duty had been granted by the Collector under this section ..."

38. Section 45(4)(a) and (5) is of particular relevance and importance in the present case. In a simplified way, section 45(4)(a) may be understood as being directed towards an arrangement under which the consideration or any part thereof for the transfer of the land was to be either "provided" or "received", either directly or indirectly, by an outsider (i.e. a non-associated company or entity). As for section 45(5), it is an extension or elaboration of section 45(4)(a), and catches an arrangement under which the transferee (or an associated company thereof) was to be "enabled to provide" the consideration "by or in consequence of the carrying out of a transaction(s)" involving a payment or other disposition by an outsider; and more importantly for our present purpose, it also catches an arrangement under which the transferor (or an associated company thereof) was to "part with" the consideration "by or in consequence of the carrying out of a transaction(s)" involving a payment or other disposition by an outsider.

39. I should add here that subsections (4)(c) and (5A) are aimed at an arrangement under which the transferor and transferee of the land were to cease to be associated by a change in the percentage of the issued share capital of the transferee as beneficially owned by the transferor or a third body corporate, as well as the actual cessation of such association (regardless of whether that was done under an arrangement or not) between the transferor and transferee within two years after the date of execution of the instrument effecting the transfer. This, however, is of no significance in the present case because, as explained above, Shiu Wing and Arrowtown were and remained up to the time the appeal was argued before me (so I was informed by counsel) "associated" companies within the meaning of section 45, notwithstanding the sale of 980 'A' shares in Prepaid to Calm Seas, subject to the Collector's challenge in this regard based on the Ramsay approach.

40. The Collector argued, however, that these anti-avoidance provisions in section 45(4)(a) and (5) caught the Assignment because, first, under an arrangement involving Shiu Wing and all other relevant parties, part of the consideration for the assignment of the Development Land, namely, the DC Agreement and/or the Shareholders Deed, was "provided" by an outsider or outsiders, namely, Calm Seas, New Town and/or Swire, thereby infringing subsection (4)(a); and/or, second, under an arrangement, the undisputed part of the consideration for the assignment of the Development Land, namely, the Loan Note, was to be "part[ed] with" by or in consequence of the carrying out of a transaction involving a payment by an outsider, namely, Calm Seas, thereby infringing subsection (5) of section 45. Arrowtown disagreed, and the issues were thus joined.

Issues in this appeal

41. In this appeal, three main issues were argued on behalf of Arrowtown and the Collector:

(a) whether part of the consideration for the transfer of land was provided by an outsider, in infringement of section 45(4)(a), and this gave rise to a subsidiary issue of what was the "consideration" for the transfer;

(b) whether there was an "arrangement" under which Shiu Wing (or a subsidiary company thereof) was to "part with" the Loan Note (the undisputed consideration or part of the consideration for the transfer of the land) "by or in consequence of the carrying out of a transaction" involving a payment by an outsider, thereby infringing subsection (5) of section 45; and

(c) whether the application of the Ramsay approach, if applicable at all, to Arrowtown's claim for relief under section 45 would affect the outcome of the claim, and if so, how.

42. Before I proceed to deal with these issues in turn, I should add that in this type of appeal, the function of the Court is to determine the question submitted and to assess the stamp duty chargeable thereon if the instrument in question is, in the opinion of the Court, chargeable with any stamp duty, as provided by section 14(3) of the Ordinance. The question submitted for the opinion of the Court in the instant appeal is simply whether the Collector was correct in rejecting the taxpayer's claim for relief under sections 29H(3) and 45 of the Ordinance. The Court is not confined to the basis of or arguments actually relied on by the Collector in refusing relief, or for that matter, any basis of or arguments relied on by the taxpayer. See Guoji Transport Company Limited v The Collector of Stamp Revenue [1997] HKLRD 1168, 1170I to 1171A.

43. I should also add that although quite plainly the transactions in the present case were structured in the way they were structured with a view to obtaining stamp duty relief for the transfer of the Development Land, and indeed the provisions in the Heads of Agreement referred to above said so in so many words, it must be remembered that subject to the Ramsay approach, a person may arrange his affairs so as legally to pay a minimum amount of tax (including stamp duty): Commissioners of Inland Revenue v Duke of Westminster [1936] AC 1; Holmleigh (Holdings) Limited v Commissioners of Inland Revenue (1958) 46 TC 435, 452. A taxpayer is taxed because his affairs or transaction(s), or the instrument(s) he uses fall(s) within the wording of a piece of relevant revenue legislation (including any anti-avoidance provisions contained therein); he is not taxed because of his motive or intention to minimise his tax liability.

First issue: Provision of part consideration by an outsider under section 45(4)(a)

44. The Collector was not satisfied that part of the consideration for the transfer of the Development Land by Shiu Wing in favour of Arrowtown was not provided by an outsider. He said it was indeed so provided by Calm Seas, New Town and/or Swire. He said quite apart from the Loan Note which both sides accepted constituted (part of) the consideration for the transfer, the DC Agreement and/or Shareholders Deed also constituted part of the consideration in question. In relation to the Loan Note, there was no question of its being provided by an outsider. It was accepted by the Collector that the Loan Note, as consideration for the transfer of the Development Land, was provided by (subject to the Ramsay argument) an associated company, namely, Arrowtown, within the meaning of section 45(4)(a), and therefore not by an outsider.

45. However, the Collector took the view that the consideration for the transfer of the Development Land included the DC Agreement and/or Shareholders Deed under which important contractual promises were made by Calm Seas, New Town and/or Swire in favour of Shiu Wing. In those circumstances, part of the consideration for the transfer of the Development Land was provided by an outsider/outsiders, and therefore section 45(4)(a) was infringed.

46. Before I consider these supposedly important contractual promises made by Calm Seas, New Town and/or Swire in favour of Shiu Wing in any detail, it is first of all important for me to determine whether the DC Agreement and/or Shareholders Deed constituted part of the consideration for the transfer. Was/were the DC Agreement and/or Shareholders Deed part of such consideration? This involves the identification of the "consideration" for the assignment of the Development Land within the meaning of subsection (4)(a).

(a) Some general principles

47. In this regard, certain statements of general principle are helpful. In Phillips v Brewin Dolphin Bell Lawrie Limited [2001] 1 WLR 143, an insolvency case, Lord Scott said at p.150H, in relation to the meaning of "the consideration" in section 238(4)(b) of the Insolvency Act 1986, as follows:

"The identification of this "consideration" is in my opinion, a question of fact. It may also involve an issue of law, for example, as to the construction of some document. But if a company agrees to sell an asset to A on terms that B agrees to enter into some collateral agreement with the company, the consideration for the asset will, in my opinion, be the combination of the consideration, if any, expressed in the agreement with A and the value of the agreement with B."

48. Further, in Stanton (Inspector of Taxes) v Drayton Commercial Investment Co. Ltd. [1982] STC 585, a capital gains tax case, Lord Fraser said at p.590g that:

"the Crown is not entitled to go behind the agreed consideration in a case where, as in the present case, the transaction is not alleged to be dishonest or otherwise not straightforward."

49. No such allegation was made against any of the transactions or the arrangement in the present case. The Collector was therefore bound to accept the consideration agreed by the parties for the transfer of the Development Land, and could not go behind it and call something consideration for the transfer when it had not been so agreed by the parties.

50. Conversely, as pointed out by Browne-Wilkinson J (as he then was) in E V Booth (Holdings) v Buckwell (Inspector of Taxes) [1980] STC 578, 584a-d, a taxpayer could not go back on the way he had chosen to allocate consideration for different parts of a transaction subsequently for the purpose of gaining a tax advantage:

"In my judgment, where parties to a composite transaction has, as a result of negotiations between themselves, provided that part of the consideration is to be paid for one part of the transaction and part for another, they cannot subsequently seek to re-allocate the consideration for tax purposes. They have chosen to carry through the transaction in the particular manner, and the taxation consequences flow from the manner adopted ... Once the parties have chosen to adopt one method, in my judgment the taxation consequences must follow and it is not open to them subsequently to argue that for tax purposes the transaction ought to be treated as if a different method had been adopted."

51. So in the present case, Shiu Wing's claim for relief must stand or fall together with the consideration actually adopted or allocated for the transfer of the Development Land, and it is not open to Shiu Wing to re-allocate any such consideration for anything else, even if that may have been possible and workable on day one.

(b) Shop and Store

52. Thus far I have been using the term "consideration for the transfer" as a shorthand for the longer phrase "the consideration, or any part of the consideration, for the conveyance, transfer, sale or purchase" actually used in subsection (4)(a), which for all practical purposes in the present case, may be treated as one and the same. What does this phrase mean? Our subsections (1) and (2) are based on section 42(1) and (2) of the Finance Act 1930, whereas our subsection (4)(a) is based on section 50(1)(a) of the Finance Act 1938 as amended and replaced by section 27(3) of the Finance Act 1967, in the UK. The original section 50(1)(a), and particularly the word "consideration", were examined by the House of Lords in Shop and Store, supra; but the majority decision of the House was considered by many including Parliament to be so unsatisfactory that section 27(3) of the Finance Act 1967 was duly passed to amend the wording of section 50(1)(a) and the amendment included a deeming part which became our subsection (5).

53. Very briefly, in Shop and Store, a family owned a clothing company and a property company. The clothing company owned certain properties. The family entered into a non-binding arrangement with an issuing house pursuant to which the clothing company transferred the properties to the property company in return for the allotment of renounceable letters of allotment to shares in the property company, and then, as pre-planned, part of the shares were sold by the clothing company to the issuing house for cash, which shares were eventually sold by the issuing house in the stock market after the property company was floated. The taxpayer argued that the transfer of properties did not infringe section 50(1)¹ because the "consideration for the transfer" of the properties consisted only of the renounceable letters of allotment provided by the property company, an associated company of the clothing company. The commissioners argued that this gave too narrow a meaning to "consideration for the transfer" which had to be understood in its context, namely, "an arrangement whereunder" consideration for the transfer was to be provided. The majority (Lord Morris, Lord Hudson and Lord Wilberforce) agreed with the view of the taxpayer and held that "consideration" meant "consideration for the transfer" and not "consideration for the arrangement", and referred to what the transferor received for the transfer of the property, but not what he subsequently received by dealing with what he had received for the transfer of the property. The majority concluded that plainly the clothing company received for the transfer of the properties the shares, and the cash it subsequently received from the issuing house was received by it not for the transfer, but from its subsequent dealing with what it had got for the transfer. As the majority explained:

"What was the consideration for the transfer or conveyance of the properties which the clothing company transferred or conveyed? This is not the same as the question: How would they stand when the whole arrangement was completed? ... There is all the difference between what the clothing company got and what they did with what they got." (per Lord Morris at p.495C/D and G) (emphasis added)

"There are two contending views as to the meaning of the relevant part of section 50 of the Finance Act, 1938, which is incorporated in the statement I have made of the question. The first is that one should read "consideration for the transfer" as referring to that consideration which was taken by the transferor company under the transfer alone - which in this case would be the 2,920,000 fully paid shares in the associated transferee company.

The second would be to read the words as referring to the ultimate consideration or quid pro quo which found its way to the transferor under, i.e., as a result of, the arrangement as a whole ...

In the first place, the phrase "consideration for the transfer or conveyance" seems to me to refer clearly and naturally to that which passed to the transferor company "for" the transferred properties. The earlier portion of section 50 itself, in its reference to section 42 of the Finance Act, 1930, speaks of an instrument "the effect whereof is to convey or transfer a beneficial interest in property from one associated company to another," and the words in paragraph (a) are an evident reference back to these words.

So, just as it is clear that the initial part is directing attention to the instrument of transfer as between the two associated companies, so one would naturally expect to find the same thought expressed in paragraph (a) ...

The addition of the reference to the arrangement does nothing to alter the basic requirement that the consideration must be for the transfer. It does not achieve what, if the Revenue is to succeed, it must, namely, to substitute for the consideration for the transfer the consideration receivable under the arrangement as a whole ...

Thirdly, if one asks: "for what was 1,200,000 shares plus ￡385,000 (the quid pro quo under the arrangement, according to the Revenue) the consideration," the answer, to my mind, is not "the transfer," which must mean the transfer of the properties, but is "the transfer of the properties followed by a sale of 1,200,000 shares" - a point made by Pennycuick J. and, in my opinion, unanswered by the Revenue." (per Lord Wilberforce at pp.502F-G, 503B & E, and 504E)

54. The minority agreed with the commissioners and took a broader view. Although it did not dispute that the subsection actually described the "consideration" as the "consideration for the transfer", rather than the "consideration for the arrangement", the minority was of the view that in determining or identifying the consideration in question, one could not ignore the arrangement, and one should ask what did the transferor get for the transfer under the arrangement. The minority concluded that viewed that way, what the clothing company got for the transfer under the arrangement was quite obviously the shares and the proceeds of sale thereof, and as the proceeds of sale came from the issuing house, an outsider, the claim for relief failed. So as Lord Reid said at p.490C-E:

"Turning to the words of the section and bearing in mind that consideration has no technical meaning here but merely means what the transferor got, the question is - what under the arrangement did the transferor get for the transfer? I do not think that it involves any stretching of the language to hold that the transferor got shares and money. On the other hand it would, I think, be an unreasonable result if we had to hold that all depended on the stage of the arrangement at which the outside money came to the transferor. If it came at the stage of the transfer of the property then it would admittedly destroy the exemption but if it came at the next stage it would not. I would only accept that if the words were not reasonably capable of any other meaning. I do not think that the words "for the transfer" are so rigid and compelling as to require that result. In my view it is a natural use of ordinary language to say that under this arrangement the transferor company got the shares and the money "for" the transfer of its property." (my emphasis)

55. Regardless of whether the case was correctly decided or not, it requires no imagination to see immediately that the actual decision was unsatisfactory from a taxation relief point of view. For as Lord Reid pointed out at pp.489G to 490A of his judgment,

"if outside money is brought in as part of the arrangement, then the arrangement ceases to be confined to internal administration and there is no longer any adequate reason for the exemption from stamp duty."

56. This, as I said, led to the enactment of section 27(3) of the Finance Act 1967², replacing section 50 with new provisions, based on which our subsections (4) and (5) were drafted and enacted. For present purpose, the only relevant changes in the new provisions were the inclusion of the words "or received" after "to be provided" and what has since become our subsection (4)(c) (cessation of relationship as associated companies), as well as a deeming provision at the end of the subsection (which has become our subsection (5)). That these changes were aimed directly at avoidance schemes like the one found in Shop and Store cannot be doubted. Under the new provisions, the consideration for the transfer of the properties, i.e. the shares, would have been "received" by the issuing house, an outsider; and moreover, under the arrangement, with the pre-planned sale of the shares in the property company to the issuing house and ultimately the public through the stock exchange, the clothing company and the property company would have ceased to be associated companies and thus the arrangement would have been caught by the new provisions in section 27(3)(c). What perhaps is surprising is that Parliament chose to adopt these changes to close the perceived loophole highlighted by the decision in Shop and Store, instead of the more straightforward method of enlarging the meaning of "consideration" or "consideration for the transfer" to cover what the transferor received by way of consideration "under the arrangement", or in other words, the "consideration for the arrangement".

57. This is not a mere academic observation. Mr. Goldberg QC, leading counsel for Arrowtown, argued that notwithstanding the subsequent replacement of section 50 by section 27(3), Shop and Store remains good law for the meaning of "consideration for the transfer" under the new provisions in section 27(3) and therefore our section 45(4)(a). In particular, on the authority of Shop and Store, in seeking to identify the consideration for the transfer of property, one must not confuse, so Mr. Goldberg argued from his basic premise, the consideration for the transfer of the property in question, and the consideration for the arrangement under which the transfer was done, as the commissioners in Shop and Store erroneously tried to do, as per the majority of the House of Lords in that case.

58. I basically agree with this analysis. The amendment changed the provisions, but did not change the actual decision in Shop and Store, and what was said there, subject to the Ramsay argument mounted by Lord Goodhart QC, leading counsel for the Collector, which I shall deal with below, in relation to the meaning of "consideration for the transfer", must remain to be correct. And although Shop and Store was only a majority decision of the House involving the dissent of as eminent a jurist as Lord Reid, and a House of Lords decision is strictly speaking not binding on this Court particularly after the resumption of sovereignty in 1997, it must, in my judgment, be regarded as having the highest persuasive authority at least in this Court: C.f. de Lasala v de Lasala [1980] AC 546, 557A to 558F.

59. However, accepting that "consideration" in subsection (4)(a) means "consideration for the transfer" instead of "consideration for the arrangement" does not, in my judgment, require one to ignore the obvious background against which the pre-ordained transfer was effected, namely, an arrangement. Moreover, depending on the facts and in particular how the arrangement was structured, consideration for the transfer and that for the arrangement need not be mutually exclusive. What was the consideration for the transfer, could, depending on the facts, also constitute the, or part of the, consideration for the arrangement. Put another way, a finding that something was the or part of the consideration for the arrangement does not necessarily mean that it could not be the or part of the consideration for the transfer, and one has to be careful in examining the arrangement and the transactions pre-ordained thereunder in order to determine whether that was or was not the case. At the end of the day, one's task is to identify the consideration for the transfer under the arrangement.

(c) DC Agreement as part consideration

60. Bearing all this in mind, I proceed to examine the arrangement in the present case in order to determine whether the DC Agreement and/or Shareholders Deed formed part of the consideration for the transfer, there being no dispute by Arrowtown that the transfer was done under an arrangement in pursuance of or in connection with which the Assignment of the Development Land was executed. (In my judgment, there can be no dispute that the Assignment was a pre-ordained one executed in pursuance of or in connection with an arrangement contained in or evidenced by the Heads of Agreement as replaced by the Share Sale Agreement.)

61. I shall first deal with the DC Agreement. The Memorandum of Agreement stated that the Development Land was agreed to be sold and purchased "for the price of ... $12,714,856,874.00". That, in my judgment, plainly did not state the entire consideration for the sale and purchase of the Development Land. Likewise, the Assignment stated that "[i]n consideration of the sum of ... $12,714,856,874.00" paid by Arrowtown (in the form of the Loan Note), the Development Land was assigned by Shiu Wing to Arrowtown. That again, in my judgment, did not state the entire consideration for the transfer of the property. I say this because a quick look at the DC Agreement would reveal that something else also formed part of the consideration for the transfer.

62. The DC Agreement, executed by Shiu Wing, Arrowtown, Super Charge, Prepared and Calm Seas, recited the Memorandum of Agreement and continued as follows:

"It was a condition of the sale and purchase of the Development Land that [Arrowtown] should enter into this Agreement to provide for certain deferred consideration (if the same should arise) to be paid by [Arrowtown] and this Agreement is accordingly supplemental to the Memorandum."

63. Clause 1 of the DC Agreement then went on to provide specifically as follows:

"[Arrowtown] shall pay to [Shiu Wing] 12% of the Surplus Proceeds (as defined in Clause 2 hereof) as deferred consideration for the Development Land." (my emphasis)

64. Clause 20 of the DC Agreement, inserted apparently pursuant to the requirement laid down in section 29B(5)(j) of the Stamp Duty Ordinance, read:

"The parties declare that the amount or value of any other consideration which each party executing the Memorandum knows has been paid or given, or has been agreed to be paid or given, to any person for or in connection with the Memorandum or any conveyance on sale pursuance to the Memorandum (excluding legal expenses) is nil other than as disclosed in this Agreement." (my emphasis)

65. The Share Sale Agreement also described the DC Agreement as

"an agreement by [Arrowtown] to pay deferred consideration in respect of the assignment of the Development Land ... to [Shiu Wing] duly executed by [Arrowtown] and [Shiu Wing] containing, inter alia, the terms as set out in Part 2 of Schedule 2". (clause 5.3(A)(4))

66. And paragraph 2.1 in Part 2 of Schedule 2 provided specifically that:

"[Arrowtown] shall pay to [Shiu Wing] 12% of the Surplus Proceeds ... as deferred consideration for the Development Land".

67. In those circumstances, it is plain that apart from the sum of $12,714,856,874 represented by the Loan Note, part of the consideration for the assignment of the Development Land consisted of the 12% "Surplus Proceeds" as defined in the DC Agreement to be received in future. This share of 12% of the Surplus Proceeds was significantly more valuable than the 2% interest which Shiu Wing retained through its subsidiaries in Prepared and Arrowtown and through Arrowtown the Development Land, by virtue of Super Charge's 2% 'A' shareholding in Prepared. However, the 12% Surplus Proceeds, if any, would only be payable in future. So at the time when the Memorandum of Agreement and DC Agreement were signed to effect the transfer of the Development Land to Arrowtown, Shiu Wing received in return, as part of the consideration for the transfer, a contractual promise by Arrowtown to pay the 12% Surplus Proceeds, if any, in future. And the same were to be paid in accordance with the terms and provisions contained in the DC Agreement. In this regard, clause 12 of the DC Agreement specifically provided that:

"[Arrowtown] shall pay to [Shiu Wing] or (as the case may be) satisfy the Deferred Consideration (if any), subject to and in accordance with the provisions of this Agreement." (my emphasis)

68. The DC Agreement contained, inter alia, provisions for the ascertainment and calculation of the Surplus Proceeds, payment of interim deferred consideration, interim distribution, calculation of deferred consideration, deferred consideration settlement options (including immediate settlement thereof) in case of unsold units in the development, dispute resolution, clawback of deferred consideration in case of overpayment of interim deferred consideration, clawback of dividends and interim distributions in case the same should exceed the Surplus Proceeds, Shiu Wing's assignment of its right to receive deferred consideration, and indemnity for tax relating to deferred consideration.

69. In my judgment, Arrowtown's contractual promise to pay the 12% Surplus Proceeds, if any, in future, subject to and in accordance with the provisions of the DC Agreement, which was what Shiu Wing received as part consideration in return for its transfer of the Development Land to Arrowtown, was so intricately and inseparably linked to the rest of the terms contained in the DC Agreement that the whole of the DC Agreement must be considered as part of the consideration received by Shiu Wing for the transfer of the Development Land to Arrowtown, for the purpose of subsection (4)(a).

70. A simpler route arriving at the same result would be for one simply to ask, as did the law lords in Shop and Store, what did Shiu Wing get or receive, on the facts of this case, in return for the assignment of the Development Land to Arrowtown? In my judgment, the answer must be the Loan Note and the DC Agreement, the former representing and embodying Shiu Wing's right to receive the unpaid price, and the latter Shiu Wing's right to receive the 12% Surplus Proceeds, if any, in future.

71. The importance of this for the purpose of subsection (4)(a) is that whereas the promise to pay the 12% Surplus Proceeds was, at least on the face of it, only made by Arrowtown, admittedly an associated company of Shiu Wing (subject to the Collector's Ramsay argument), the DC Agreement was executed not only by Arrowtown, but also Calm Seas, an outsider.

72. Mr. Goldberg argued that this did not matter because with one small exception, the DC Agreement did not impose any obligation on Calm Seas, or put more pertinently, no promise was made by Calm Seas under the DC Agreement towards Shiu Wing, and therefore Calm Seas did not "provide" any consideration in favour of Shiu Wing for the transfer of land even though it signed the DC Agreement. The small exception in the DC Agreement accepted by Mr. Goldberg comprised an inconspicuous reference to Clam Seas hidden in the middle of clause 14 dealing with clawback of dividends and interim distributions:

"In the event that dividends are declared and paid by [Arrowtown] to [Prepared] before completion of the Development or any other Interim Distribution is made by [Arrowtown] and these, in aggregate, exceed the final amount of the Surplus Proceeds required by [Arrowtown] to distribute to [Prepared], then an amount equivalent to the amount of the excess ("Excess") shall be paid to [Arrowtown] by [Prepared] or, to the extent that [Prepared] has declared that dividends or made any other distributions to its shareholders from any dividends and/or Interim Distributions received by it from [Arrowtown], by Super Charge (up to the amount received by it from [Prepared]) and Calm Seas (up to the amount received by it from [Prepared]). Any payment of Excess hereunder shall be made together with interest at HIBOR+2% compounded monthly from the date of the payment of the dividend or distribution which, when aggregated with previous dividends and distributions (if any), forms the Excess." (my emphasis)

73. In short, under the DC Agreement, Calm Seas provided a contractual promise to Shiu Wing to repay to Arrowtown any overpayment of dividends or interim distribution received from Arrowtown through Prepared before completion of the Development (which if unrepaid would obviously adversely affect Shiu Wing's entitlement to the 12% Surplus Proceeds), together with compound interest. In my judgment, this contractual promise, forming one of the many contractual promises contained in and comprising the DC Agreement which constituted part of the consideration for Shiu Wing's transfer of the Development Land to Arrowtown as analysed above, and provided by Calm Seas, an outsider, was sufficient to render subsection (4)(a) applicable to the present case. In other words, I find that Calm Seas provided in clause 14 of the DC Agreement part of the consideration for the transfer of land. Subsection (4)(a) refers to "any part of the consideration", and in my judgment, it does not matter at all that the promise made by Calm Seas in clause 14 was just one of the many promises made to Shiu Wing in the DC Agreement. So long as it was a substantive promise, whether it was likely or unlikely that it would one day be invoked, is totally irrelevant. Provided that it was a real as opposed to an illusory promise, the Court is not concerned with its value, likelihood of being brought into use, or adequacy as consideration. In the present context, so long as it formed part of the consideration, the Court is not concerned with how big, or how small, a part it was of the whole consideration.

74. But I would base my judgment in this aspect of the case also on a wider premise than clause 14. Although apart from clause 14, there was no direct reference in any of the clauses in the DC Agreement to Calm Seas making any specific promise in favour of Shiu Wing, it does not follow that Calm Seas made no such promises. The important fact is that Calm Seas was a party to and a signatory of the DC Agreement. Everything that was mentioned and agreed in the DC Agreement was binding on Calm Seas, it being a party to the same. That Calm Seas was a party to the DC Agreement was of particular importance given that Calm Seas was to become the effective or de facto owner or entity in control of Prepared and Arrowtown following the completion of the sale and purchase of the 980 'A' shares in Prepared.

75. Take clause 4 of the DC Agreement as an example. It provided that as soon as practicable after receipt, the Disposal Proceeds (as defined in the DC Agreement), relevant to the calculation of the 12% Surplus Proceeds, should be applied in a particular order, namely, reimbursement of costs and repayment of certain loans, payment of (interim) deferred consideration, repayment of other outstanding loans and payment of dividends to shareholders. The clause did not say who was to do all this. No doubt, as Arrowtown was to own the Development Land, and presumably would receive the proceeds of sale giving rise to the Disposal Proceeds, Arrowtown was to apply the same in accordance with clause 4. But it does not follow that clause 4 only imposed an obligation on Arrowtown to do so, or put another way, only involved a contractual promise made by Arrowtown in favour of Shiu Wing. In my judgment, clause 4 imposed equally an obligation on Calm Seas to so apply the Disposal Proceeds after receipt. Calm Seas itself was under an obligation to so apply the Disposal Proceeds if they directly came into its hands. This was in itself a real and important obligation of Calm Seas, and correspondingly a real and important promise in favour of Shiu Wing. But even if they were received by Arrowtown, one must still bear in mind Calm Seas' effective or de facto ownership or control of Prepared and Arrowtown by virtue of its ownership of the 980 'A' shares in Prepared, and in particular according to the Shareholders Deed, all but one of the directors of Prepared and Arrowtown were to be appointed by Calm Seas. In those circumstances, any failure, for instance, of Arrowtown to apply the Disposal Proceeds in accordance with clause 4 must also have involved a failure to comply with the same by Calm Seas' representatives in the board of Arrowtown to so apply the Disposal Proceeds; and a breach by Arrowtown of clause 4 must also have involved a breach by Calm Seas' representatives and therefore Calm Seas itself of the same.

76. If Calm Seas was not a contracting party to the DC Agreement, and if, for example, Arrowtown failed to apply the Disposal Proceeds in the manner as required by clause 4, Shiu Wing could only sue Arrowtown for breach of contract under the DC Agreement. Arrowtown might be worth-suing, or it might not, depending on what its assets and liabilities were at the time. After all, although Arrowtown was to own the Development Land, it was not to be the owner of the Loan Note, which was to be owned by Prepared. However, as Calm Seas was indeed a party to the DC Agreement, Shiu Wing would be entitled to sue, in the above example, not only Arrowtown, but Calm Seas, for breach of clause 4. And depending on the facts, Calm Seas may well have been more worth-suing than Arrowtown. For after all, Calm Seas not only indirectly owned and controlled (in the aforesaid sense) the Development Land through Prepared and Arrowtown, unlike Arrowtown, it owned and controlled the Loan Note through Prepared as well.

77. The same exercise may be repeated with ease in relation to other clauses in the DC Agreement whenever creating promises in favour of Shiu Wing. The same conclusion would be arrived at when the clauses did not specify who was/were to perform the promises in question (like clause 4). But the result would equally be the same even if the clauses named Arrowtown as the promisee, like, for instance, Arrowtown's promise to pay the 12% Surplus Proceeds as deferred consideration. Given Calm Seas' effective or de facto control and ownership of Arrowtown and its overwhelming control of its board, any breach, for instance, by Arrowtown to so pay the deferred consideration must also have involved a breach by Calm Seas of the same provisions in the DC Agreement, which were binding on both Arrowtown and Calm Seas.

78. Put another way, I find that the DC Agreement comprised general contractual promises made not only by Arrowtown, but by Calm Seas, an outsider, also, in favour of Shiu Wing, forming part of the consideration for Shiu Wing's transfer of the Development Land in favour of Arrowtown. In those circumstances, in the wording of subsection (4)(a), some "part of the consideration" for the transfer was provided by an outsider unassociated with Shiu Wing and Arrowtown. The subsection was infringed, and any claim for relief under subsections (1) and (2) must fail.

79. Mr. Goldberg, counsel for Arrowtown, argued in relation to clause 14, that the promise made by Calm Seas was in reality referable to the sale of shares in Prepared, rather than the payment of deferred consideration for the transfer of the Development Land, and therefore should be regarded as consideration for the sale of shares, rather than that for the transfer of the Development Land. Mr. Goldberg said in fact he "felt" that most if not all of the provisions in the DC Agreement, and indeed the DC Agreement itself, were really referable to the sale of shares in Prepared or the resulting need to govern the shareholders' relationship inter se, instead of the transfer of the Development Land, and therefore should be regarded as consideration for the former rather than the latter. The provisions in the DC Agreement, including clause 14, really belonged with the Shareholders Deed, so it was pressed before me.

80. I disagree. In accordance with the general legal principles I outlined above, as well as the analysis of the documents and transactions involved in the present case, the parties clearly allocated the DC Agreement and the various contractual promises made thereunder in favour of Shiu Wing as part of the consideration for the transfer of the Development Land rather than the sale of shares in Prepared. Just as the Collector could not go behind the documents and transactions, equally the taxpayer could not go back on the allocation and seek to re-allocate the consideration: EV Booth (Holdings), supra. In particular as regards clause 14, as I said to Mr. Goldberg during argument, there was no question of doing a "cut and paste" exercise to transplant it from the DC Agreement into the Shareholders Deed. In relation to the other clauses in the DC Agreement, quite plainly they were there in relation to the payment of the 12% Surplus Proceeds forming part of the consideration for the transfer of the Development Land, and had little or nothing to do with the sale of shares or the resulting need to govern the shareholders' relationship inter se by the Shareholders Deed. The provisions would have been equally required even if there were not to be any sale of shares.

81. Mr. Goldberg also argued that clause 5.3(A)(4) of the Share Sale Agreement only described the DC Agreement, being one of the documents which Shiu Wing had to deliver to Calm Seas on completion of the sale and purchase of the Sale Shares, as one "executed by [Arrowtown] and [Shiu Wing]". It did not refer to, still less require, Calm Seas joining in and signing the same as a co-party. So Mr. Goldberg argued that whatever contractual promises made by Calm Seas in the DC Agreement in favour of Shiu Wing that were referable as part consideration for the transfer of the Development Land, were not provided by Calm Seas under "an arrangement". At one stage, Mr. Goldberg went so far as to suggest that Calm Seas joined in and signed the DC Agreement as a co-party "gratuitously", although he accepted that there was no evidence to that effect and indeed there was no direct evidence or explanation of any kind relating to the alleged departure from clause 5.3(A)(4). Therefore subsection (4)(a) was not infringed, so Mr. Goldberg sought to argue.

82. I find it difficult to accept this argument. The starting point is that subsection (4)(a) imposes a burden on the taxpayer to satisfy the Collector that the instrument in question was not executed in pursuance of or in connection with an arrangement under which the consideration or any part thereof for the transfer was to be provided by an outsider: Littlewoods Mail Order Stores Ltd v Commissioners of Inland Revenue [1963] AC 135, 150. It was therefore for Arrowtown to adduce sufficient and satisfactory evidence before the Collector to show that under the arrangement Calm Seas was not to become a co-party to the DC Agreement making promises in favour of Shiu Wing as part of the consideration for the transfer of the Development Land. Although clause 5.3(A)(4) of the Share Sale Agreement did not mention Calm Seas executing the DC Agreement, it did not say that only Shiu Wing and Arrowtown were to execute the same either. It must be remembered that clause 5.3(A)(4) mentioned the DC Agreement in the context of the completion of the sale of shares and the document was referred to as one of the documents to be delivered by Shiu Wing to Calm Seas upon completion. In those circumstances, it would be natural for the clause to simply refer to the document as having been duly executed by Shiu Wing and Arrowtown. Calm Seas need not have executed the DC Agreement at that stage but could well have scheduled to execute it after the same was delivered by Shiu Wing to it upon completion of the sale of shares. In the circumstances, clause 5.3(A)(4) made good sense in referring to the DC Agreement as having been duly executed by Shiu Wing and Arrowtown. In fact, quite similarly, in relation to the Shareholders Deed, another document required to be delivered by Shiu Wing to Calm Seas upon completion of the sale of shares, clause 5.3(A)(6) only required the deed to have been "duly executed by [Shiu Wing] and Super Charge" when it was to be so delivered, although it specifically described the deed as one between, amongst others, "the parties to this Agreement", i.e. Shiu Wing, Calm Seas, New Town and Swire.

83. Moreover, paragraph 2.14 in Part 2 of Schedule 2 to the Share Sale Agreement containing the terms for payment of deferred consideration to be included in the DC Agreement, which was equivalent to clause 14 of the DC Agreement as eventually executed, specifically provided that Calm Seas had to repay any overpaid dividends or interim distributions to Arrowtown. Further, clause 14 of the Share Sale Agreement provided that New Town and Swire each guaranteed the due performance of 50% of Calm Seas' obligations under or pursuant to the Share Sale Agreement up to and including completion of the sale and purchase of the Sale Shares but not that arising thereafter "other than as provided in paragraph 2.14 of Schedule 2". All this clearly envisaged Calm Seas' joining in the DC Agreement as a party.

84. Further, apart from the terms of the Share Sale Agreement itself, on the evidence, Calm Seas' execution of the DC Agreement was done, more likely than not, under the arrangement between the parties, and was, as it were, no coincidence. The DC Agreement was signed to supplement the Memorandum of Agreement relating to the transfer of the Development Land. It was also a document required to be delivered by Shiu Wing to Calm Seas upon completion of the sale of the shares in Prepared. Both the transfer of property and sale of shares were pre-ordained under and done pursuant to an arrangement. The structure, composition and participants of the DC Agreement, prepared by the same lawyers who prepared the rest of the documentation, must have been the result of very careful planning, as part of the arrangement and the pre-ordained performance thereof. To say that Calm Seas' participation in the DC Agreement was not pre-planned or was purely accidental would really fly in the face of the available evidence, documents and circumstances in this case.

85. In any event, as I said, there was simply no direct evidence from Arrowtown to explain why Calm Seas executed the DC Agreement, and in particular evidence to exclude the very natural inference that this was done pursuant to the arrangement between Shiu Wing and its subsidiary companies on the one hand and Calm Seas, New Town and Swire on the other relating to the land exchange, transfer of the Development Land, repeated assignments of the Loan Note and sale of the Sale Shares. Even on the assumption that Calm Seas was not required or planned to sign the DC Agreement originally, any modification of the Share Sale Agreement by the parties resulting in Calm Seas' execution of the DC Agreement would still have been under such an "arrangement" between the parties, as modified. The burden was on Arrowtown to satisfy the Collector that Calm Seas' execution of the DC Agreement was something outside the arrangement between the parties. In my judgment, the Collector was perfectly entitled not to be satisfied that such was the case on the materials supplied to him. In so far as a finding is required, I have no hesitation in finding on the evidence placed before me that under an arrangement contained in or evidenced by the Heads of Agreement as replaced by the Share Sale Agreement between the parties relating to the land exchange, the assignment of the Development Land, the repeated assignments of the Loan Note, and the sale and purchase of the Sale Shares, in pursuance of or in connection with which the Assignment was executed, Calm Seas was to and did sign the DC Agreement, become a party to the same, and thus provide part of the consideration for the transfer of the Development Land.

(d) Shareholders Deed as part consideration

86. Turning to the Collector's further argument that the Shareholders Deed also formed part of the consideration for the transfer of the Development Land, bearing in mind that the Shareholders Deed was executed by Calm Seas, New Town and Swire, all outsiders, the starting point must be that nowhere in the documents, particularly the Share Sale Agreement, the Memorandum of Agreement, the DC Agreement, the Assignment and the Shareholders Deed itself, was it mentioned that the Shareholders Deed, or any covenants contained therein, formed part of the consideration for the transfer of the property. The Share Sale Agreement referred to the Shareholders Deed simply as one of the many documents required to be delivered by Shiu Wing to Calm Seas upon the completion of the sale of shares: Clause 5.3(A)(6). So prima facie, the parties did not allocate the Shareholders Deed as part of the consideration for the transfer of land. Mr. Goldberg submitted that quite plainly the Shareholders Deed was referable to the transfer of shares in Prepared which gave rise to the need for a Shareholders Deed, and should therefore be regarded as consideration for the transfer of shares. So whatever promises contained in the Shareholders Deed by outsiders did not form part of the consideration for the transfer of land, and subsection (4)(a) was therefore not infringed.

87. Lord Goodhart argued on behalf of the Collector that the Shareholders Deed contained important provisions to guarantee, safeguard, protect, enhance or entrench the rights promised to Shiu Wing under the DC Agreement, and therefore the Shareholders Deed or at least these important provisions must have also formed part of the consideration for the transfer of land. Perhaps the most direct example can be found in clause 9.2 of the Shareholders Deed which specifically provided:

"Each of [New Town], Swire and Calm Seas undertakes to [Shiu Wing] and Super Charge that it will act in good faith in relation to its obligations under this Deed and under the [Share Sale Agreement] and in particular (without prejudice to the generality of the foregoing) it shall not take or omit to take any action with the sole or main intention of prejudicing the rights of the [Shiu Wing] Group hereunder or the rights of [Shiu Wing] to receive the Deferred Consideration in accordance with the provisions of the [Share Sale Agreement]." (my emphasis)

88. In short, the argument raised on behalf of the Collector was that the Shareholders Deed protected not only Shiu Wing's rights as a 2% minority shareholder of the 'A' shares, but its right to receive the 12% Surplus Proceeds under the DC Agreement. In so far as the same served the latter function, it formed part of the consideration for the transfer of land.

89. I do not accept this argument. The allocation of consideration by the parties must be respected in the absence of any suggestion of dishonesty or lack of straightforwardness: Stanton (Inspector of Taxes), supra. The parties did not allocate the Shareholders Deed as part of the consideration for the transfer of land. And Mr. Goldberg's analysis of the Shareholders Deed as part of the consideration for the transfer of shares must, generally speaking, be correct.

90. But more importantly, as Mr. Goldberg also argued, something which protects or has the effect of protecting, or for that matter, safeguarding, entrenching or enhancing, the consideration received for the transfer of land, is, in my judgment, very different from the consideration itself. The Collector's argument was really a replica of the failed argument before the House of Lords in Shop and Store. What the transferor of land received as consideration for his transfer is different from what he subsequently got by dealing with the consideration he had received. He may have, for instance, subsequently sold the consideration and received cash in return, like what happened in Shop and Store, or he may have subsequently done something, as part of the arrangement, to protect it, safeguard it, or to enhance or entrench its value. So as part of the arrangement, the consideration (if it comprised, say, shares or cash) may have been subsequently locked up in a safe to protect and safeguard it against theft or loss, or the same may have been invested under an investment agreement subsequently entered into for greater profit. None of these would, in my judgment, convert what was done subsequently with the consideration, albeit under the arrangement, into part of the consideration for the transfer of land, as per the majority decision in Shop and Store.

91. Lord Goodhart placed much reliance on Curzon Offices Limited v Inland Revenue Commissioners [1944] 1 All ER 163, affirmed by the Court of Appeal at [1944] 1 All ER 606, in support of his argument. In so doing, Lord Goodhart implicitly mounted a related yet separate alternative argument, although the distinction between Lord Goodhart's primary argument and his alternative argument was never made very clear during submission. The alternative argument was that by executing the Shareholders Deed, Calm Seas, New Town and Swire indirectly "provided" that part of the consideration for the transfer of land comprising the DC Agreement.

92. In my judgment, when properly understood, Curzon did not provide any real support for either of Lord Goodhart's arguments. In that case, a parent company transferred a property to its subsidiary company, in accordance with an arrangement made with an outsider. The subsidiary company paid the price for the transfer from a loan raised with a bank. The loan was guaranteed by the outsider. Both Macnaghten J and the Court of Appeal held that the outsider had provided consideration for the transfer of the property. The consideration for the transfer, namely the price, was borrowed from a bank which required a guarantee from the outsider as a condition for lending money. In my judgment, in those circumstances, the outsider must be taken to have provided, albeit indirectly, the bank loan, and thus the price, which was the consideration for the transfer. Without the guarantee, no loan could have been borrowed, and the price could not be paid. So there was an indirect provision of the consideration for the transfer by the outsider. Whether eventually the outsider would be called upon to honour the guarantee in case of non-repayment of the bank loan was quite irrelevant. I think my analysis of the case accords well with what Plowman J said in Times Newspapers Ltd. v Inland Revenue Commissioners [1973] 1 Ch 155, 169B to 172E, and particularly at pp.170F to 171A, when he commented on and explained the decision in Curzon.

93. In the present case, the so-called "guarantee" (i.e. the Shareholders Deed or the relevant covenants therein) was of a totally different nature and kind. It did not "guarantee" the payment of any Surplus Proceeds. It only required Calm Seas, New Town and Swire to so manage, conduct and operate the affairs and business of Prepared and Arrowtown that the chance of earning Surplus Proceeds would not be unfairly affected or at most would be enhanced. It was qualitatively different from the guarantee provided by the outsider to the bank in Curzon without which no loan would be lent to the transferee to pay for the price of the transfer. In Curzon, by so providing the guarantee, the outsider was taken to have indirectly provided the loan and therefore the price of the transfer. In our case, by executing the Shareholders Deed, Calm Seas, New Town and Swire, cannot, by any stretch of the language, be said to have provided, even indirectly, the 12% Surplus Proceeds or the right thereto under the DC Agreement. In other words, Lord Goodhart's alternative argument based on Curzon, namely, that by executing the Shareholders Deed, Calm Seas, New Town and Swire indirectly "provided" that part of the consideration for the transfer of land comprising the DC Agreement, must fail on the facts of the present case.

94. Further, in Curzon, when properly understood, the guarantee itself did not become part of the consideration for the transfer of property. It was the provision of the guarantee which was regarded as the (indirect) provision of the consideration for the transfer, namely, the price which was paid from the bank loan supported by the guarantee. Therefore Curzon is no authority for saying that whenever payment of the consideration for the transfer was guaranteed by a guarantee, the guarantee itself also became part of the consideration; or translated into the facts in the present case, that the Shareholders Deed or the more relevant provisions therein, because of its or their "guaranteeing" effect (in the sense explained above), formed part of the consideration for the transfer of land. For that reason, Curzon does not provide any support for Lord Goodhart's primary argument which I also reject. I find that the Shareholders Deed did not form part of the consideration for the transfer of land.

95. In the circumstances, I reject the Collector's arguments under subsection (4)(a) in so far as they relate to the Shareholders Deed or the provisions contained therein.

(e) Conclusion on First Issue

96. But as I have found that the DC Agreement formed part of the consideration for the transfer of land, and either the DC Agreement as a whole or at least clause 14 thereof was provided by Calm Seas, an outsider, under an arrangement involving the land exchange, the transfer of the Development Land, the repeated assignments of the Loan Note and the sale of the Sale Shares, in pursuance of or in connection with which the Assignment was executed, subsection (4)(a) has been infringed, and Arrowtown's claim for relief must fail.

Second issue: Parting with consideration under section 45(5)

97. I now turn to the second main reason why the Collector said no relief should be granted in the present case, namely, an infringement of subsection (5). As previously explained, subsection (5) originated from section 27(3) of the Finance Act 1967 which was introduced as a result of the decision of the House of Lords in Shop and Store. In Hong Kong, when enacting the relevant provisions (with the benefit of hindsight of Shop and Store and the amending UK legislation), section 27(3) instead of the old section 50 under the 1938 Act was followed, with the exception that the tail portion of section 27(3) was detached from the rest and became a separate subsection (5).

98. After some fine-tuning and re-alignment efforts, the ultimate argument put forward on behalf of the Collector under subsection (5) at the hearing of this appeal was that there was a "parting with" of that part of the consideration comprising the Loan Note "in consequence of the carrying out of a transaction" involving a payment by Calm Seas, an outsider.

(a) Relationship between section 45(4)(a) and section 45(5)

99. Before I deal with this argument in greater detail, I should say a few words about subsection (4)(a) and subsection (5) and their interrelationship, which will be relevant to the arguments to be discussed below. It is clear from the legislative history of section 27(3) of the UK Act and the section itself that our two subsections were originally one, and were enacted to cater for situations where in truth and in reality outside money or involvement formed part of the script. More specifically, our subsection (5), which must be read together with subsection (4)(a), is intended to be an enlarging provision, catching arrangements and transactions within its net which otherwise may have escaped the wording of subsection (4)(a). So whilst subsection (4)(a) catches any direct or indirect "provision" of the consideration by a third party, subsection (5) goes further and catches any arrangement under which the provision of the consideration is to be enabled "by or in consequence of the carrying out of a transaction" involving a payment or other disposition by an outsider, thereby greatly enlarging the scope of infringing "provision" and the meaning of "indirect" in subsection (4)(a). Likewise, whilst subsection (4)(a) is concerned with direct or indirect "receipt" of the consideration by an outsider, subsection (5) talks about "parting with" the consideration "by or in consequence of the carrying out of a transaction" involving a payment or other disposition by an outsider, thereby shifting the focus from that of receipt by an outsider to that of parting with by the transferor (or its associated company).

100. This latter point was illustrated by the arguments chosen to be run by the Collector in the present case. In the present case, neither the Collector nor Lord Goodhart relied on subsection (4)(a) to argue that the Loan Note, or 98% of it, had been "received ... indirectly" by Calm Seas, an outsider, when it acquired 98% of the issued 'A' share capital of Prepared and thus the effective and de facto control and ownership of Prepared, to which ultimately the Loan Note had been assigned, as per the arrangement. Lord Goodhart in his submission said that it would be difficult to say Calm Seas had, even indirectly, "received" the Loan Note (or 98% of it), without disregarding the separate legal entity involved as well as the fact that according to the very wording of subsection (4)(a), Prepared was to be regarded as an associated company, not an outsider. Certainly it would be difficult to say that the Loan Note was received directly by Prepared as an associated company, yet at the same time it was also received indirectly by an outsider. It must have been with those difficulties in mind that the Collector and Lord Goodhart chose to focus their attack on an infringement of subsection (5). (It may be added that quite fairly, no argument was raised by or on behalf of the Collector that in the present case since part of the indebtedness under the Loan Note was subsequently repaid by money borrowed under a syndicated loan facility involving outsiders, either subsection (4)(a) or subsection (5) had been infringed. In accordance with both the practice in UK as well as that in Hong Kong, an outside bank loan is not regarded by the Collector as the provision of consideration by an outsider or the enabling of the provision within the meaning of either subsection if it is a genuine arm's length transaction with the bank which has no interest in the property other than qua bank: See Circular to Members No. 1/83 dated 31st January 1983 of The Law Society of Hong Kong setting out the views of the Collector in this regard. Moreover, in the present case, there was simply no or no sufficient evidence to say that the syndicated loan was a pre-ordained one.)

(b) Parting with to an outsider only?

101. But on behalf of Arrowtown, Mr. Goldberg made a preliminary point relating to subsection (5). He said that since subsection (5) quite obviously built on subsection (4)(a), and since subsection (4)(a) was concerned with receipt of the consideration by an outsider, so likewise subsection (5) was concerned with parting with the consideration to an outsider only. Since the Loan Note was never transferred to any outsider, but eventually to Prepared, an associated company, subsection (5) had no application at all. He further backed up this construction of subsection (5), which he informed the Court had never been construed by any court anywhere in the world before, by reference to the phrase "or a body corporate associated with either as there mentioned" in subsection (5). His argument was that if subsection (5) applied to a parting with in favour of an associated company (i.e. a non-outsider), then there could never be any parting with by such an associated company triggering the operation of subsection (5), which had not been triggered when the consideration was parted with by the transferor in favour of the associated company in the first place. So he concluded that in order to give the phrase a real meaning, the correct construction of subsection (5) had to be that it did not apply to a parting with to an associated company (like Prepared in the present case). This was an interesting argument.

102. However, I do not accept the argument. First, there is no warrant to read words of restriction into subsection (5). Its undoubted linkage with subsection (4)(a) does not require such a construction. It should be remembered that subsection (4)(a) deals with "receipt" of the consideration by an outsider, and so by definition, it is concerned with an outsider's receipt of the consideration. However, subsection (5) focuses on the "parting with" of the consideration, and there is no logical requirement to restrict the recipient to an outsider. Indeed, if the consideration was parted with to an outsider, there would be no need to rely on subsection (5) at all, for in that case, the consideration must have been "received" by an outsider, thereby triggering the operation of subsection (4)(a). In fact in such a case, subsection (5) would operate more restrictively than subsection (4)(a) because the latter would be automatically infringed if the consideration was received by an outsider, whereas section (5)(a) would require that the consideration be parted with "by or in consequence of" a transaction involving a payment or other disposition by an outsider before it would operate against the arrangement. So for instance, the making of a pre-ordained gift of the consideration in favour of a non-associated charity under an arrangement would be caught by subsection (4)(a) even if no payment or other disposition was involved by the charity or any other outsider, whereas it would not infringe subsection (5) unless the gift was made by or in consequence of a transaction involving a payment or other disposition by the charity or some other outsider. This really demonstrates that quite contrary to Mr. Goldberg's submission, subsection (5) is designed primarily against a parting with of the consideration to an associated company, rather than an outsider.

103. As regards the reference to an associated company in subsection (5), not only is it meaningful in relation to the "enabling" limb in subsection (5), it is equally meaningful to the "parting with" limb in that it applies to the situation where as part of the arrangement the consideration was paid by the transferee not to the transferor but an associated company of the transferor. In that case, subsection (5) operates against an arrangement under which the associated company was to part with the consideration so received from the transferee in an infringing manner in terms of subsection (5).

104. Mr. Goldberg sought to argue that any direct payment of the consideration by the transferee to the associated company would have constituted a "parting with" of the consideration by the transferor in favour of the associated company in the first place, and if there was any infringing arrangement, subsection (5) would have been triggered at that stage, and there would be no question of any subsequent triggering of subsection (5) by a subsequent "parting with" of the consideration by the associated company. I do not accept that the direct payment of the consideration by the transferee to the associated company would constitute a "parting with" of the consideration by the transferor in favour of the associated company. The transferor did not receive the consideration from the transferee. As part of the arrangement, the consideration was received by the associated company from the transferee direct, which then parted with the consideration in favour of someone else. In my judgment, the transferor did not receive the consideration, and it did not part with what it had not received. But in any event, regardless of the true significance of the reference to an associated company in the "parting with" limb of subsection (5), I am of the view that on a true construction of subsection (5), it is not restricted to a parting with to an outsider. In other words, I reject the preliminary point raised by Mr. Goldberg.

(c) "Parting with" within section 45(5)

105. Turning to the application of subsection (5) to the present case, in my judgment, there are four relevant and requisite elements to be satisfied, in so far as the facts of the present case are concerned:

(a) There must have been an "arrangement".

(b) "Under" the arrangement, the transferor or its associated company was to "part with" the consideration or the relevant part thereof (in favour of anybody).

(c) The consideration was to be parted with "in consequence of the carrying out of a transaction or transactions".

(d) The transaction(s), or perhaps the carrying out of the transaction(s), must have involved a payment or other disposition by an outsider.

106. In my judgment, (a) is satisfied by the whole arrangement between the parties for the land exchange, the transfer of the Development Land and the respective assignments of the Loan Note, and the sale of the Sale Shares, which Mr. Goldberg called the "land transaction", the "internal transaction" and the "external transaction" respectively. The whole arrangement, in my judgment, was contained in or evidenced by the Heads of Agreement as replaced by the Share Sale Agreement.

107. There can be no doubt that the Loan Note was to be and was in fact parted with by way of an assignment by Shiu Wing, the transferor, to Eastview, under the arrangement mentioned in the preceding paragraph. Indeed clauses 2.2 and 7.1(F) of the Share Sale Agreement specifically required Shiu Wing to effect the "Reorganization" described in Schedule 3 to the Agreement, part of which involved precisely the assignment of the Loan Note by Shiu Wing to Eastview. So (b) is also satisfied.

108. As for (c), it is plain that the parting with of the Loan Note was to be done in consequence of the carrying out of the Share Sale Agreement. As mentioned in the preceding paragraph, clauses 2.2 and 7.1(F) of the Share Sale Agreement actually required Shiu Wing to assign the Loan Note to Eastview. Therefore in carrying out clauses 2.2 and 7.1(F) of the Share Sale Agreement, the Loan Note had to be assigned and parted with by Shiu Wing. Mr. Goldberg objected and argued that the Share Sale Agreement had already been used as the "arrangement" under (a) above (which as I understand it he did not seriously dispute with), and the same could not at the same time constitute the "transaction" in consequence of the carrying out of which the Loan Note was to be parted with by Shiu Wing. An "arrangement" in subsection (5), so it was argued, must be different from a "transaction" for the purpose of the subsection. Otherwise, the legislature would not have used different words in the same subsection. He said the "transaction" in question was the so-called "internal transaction" - the transfer of the Development Land and the repeated assignments of the Loan Note. That did not involve the payment of any money by an outsider, which only took place during the "external transaction" stage (i.e. the sale of shares in Prepared) which came after the internal transaction. In other words, the parting with of the Loan Note was done "in consequence of" the carrying out of the internal transaction under the whole arrangement (i.e. the Share Sale Agreement), but not the subsequent carrying out of the external transaction only which involved the payment of money by an outsider.

109. I do not accept this argument. An "arrangement" is a very wide word and covers all schemes and arrangements, whether legally binding or not, as illustrated by Shop and Store. It covers what a businessman would call a scheme, a plan, an understanding, a gentlemen's agreement, or an arrangement, all with no binding effect at law, as well as a legally binding contract which again may range from a simple contract, a complicated contract, a deed, to a series of interlocking and interlinking legally binding agreements or what may be called a composite agreement. Likewise, the word "transaction" is capable of having a very wide meaning, and should be understood in a commercial or business sense. In my judgment, in section 45(5), the word simply refers to something conducted, carried out or completed by people, usually with some legal consequence, in a business or commercial context (as a general rule), like a sale, a purchase, a loan, a mortgage, a charge or a pledge, an exchange, a gift, a surrender, and simply quite many commercial or business deals or contracts. The meaning of an "arrangement" is certainly wide enough to cover a "transaction" or a series of "transactions", either presently carried out as constituting the arrangement or to be carried out as pre-planned or pre-ordained under the arrangement. Conversely, the word "transaction" (or "transactions") is likewise wide enough to include something which also falls within the meaning of an "arrangement", depending on the facts. In other words, there is an overlap between the two. There is no logical, linguistic or conceptual necessity to say that the two are mutually exclusive, which was the basic premise of Mr. Goldberg's argument.

110. In my judgment, the legislature used the two words in subsection (5) to give it maximum flexibility in terms of catching instruments not deserving of relief. An arrangement, particularly one amounting to a legally binding contract, may be itself a transaction, even though under it many smaller and individual transactions are pre-planned or pre-ordained to be carried out. And in the context of the present case, borrowing Mr. Goldberg's own terminology, whilst the Share Sale Agreement, being an "arrangement", comprised or pre-ordained the land "transaction", the internal "transaction" and the external "transaction" to be carried out, this does not prevent it, i.e. the Share Sale Agreement, from being itself called a large composite "transaction" between Shiu Wing, Calm Seas, New Town and Swire. I believe that accords well with the commercial or business, as well as the ordinary and natural, meanings and usages of the words "arrangement" and "transaction". Therefore in my judgment, in the present case, the parting with of the Loan Note by Shiu Wing was to be done in consequence of the carrying out of the Share Sale Agreement - a binding contract and a "transaction" within the meaning of subsection (5), and therefore (c) is satisfied.

111. Finally as regards (d), the Share Sale Agreement, or the carrying out of the Share Sale Agreement, quite obviously involved the payment of a huge sum of money by Calm Seas, an outsider, to Shiu Wing and Super Charge. In those circumstances, (d) is also satisfied.

112. In other words, in my judgment, subsection (5) has been infringed as well. And for that reason also, the Collector was correct in refusing relief. (In those circumstances, it is quite unnecessary for me to consider a possible alternative argument, briefly mentioned by me during Mr. Goldberg's submission, that arguably there was a parting with of the Loan Note by Super Charge, an associated company of Shiu Wing, when it sold the controlling 'A' shares in Prepared to Calm Seas, thereby "parting with" the effective or de facto control and ownership of the Loan Note through Prepared to Calm Seas.)

(d) Collector's alternative argument

113. I would mention very briefly an alternative argument raised by Lord Goodhart on behalf of the Collector at the hearing of the appeal, namely, that clause 4.1(B) of the Share Sale Agreement governing payment of the further deposit by Calm Seas in return for Shiu Wing's solicitors' undertakings to use the further deposit to discharge the premium for the land exchange and to deliver to Calm Seas upon completion of the sale of the Sale Shares various documents including the respective assignments of the Loan Note constituted a "transaction" for the purpose of (c), in an attempt to get around Mr. Goldberg's argument based on the supposed difference between an "arrangement" and a "transaction". The giving of the undertakings set the scene for the payment of the further deposit. The payment of the further deposit enabled the premium to be paid to the Government, which in turn enabled the land exchange to take place granting the Development Land in favour of Shiu Wing. This in turn enabled the same to be sold to Arrowtown in return for the Loan Note which was then assigned and parted with by Shiu Wing. In that way, it was said on behalf of the Collector that the parting with of the Loan Note was in consequence of the payment of the further deposit by Calm Seas, an outsider, and the giving of the undertakings.

114. I find this picking of one step out of the land exchange and sale of shares transactions provided in the Share Sale Agreement as a "transaction" in consequence of the carrying out of which the Loan Note was said to have been parted with highly artificial and unsatisfactory. Perhaps the point is not capable of much elaboration, and you recognise a "transaction" when you see one; for my part, I do not consider the payment of the further deposit and the giving of undertakings in return a "transaction". To me, they were part of a transaction or series of transactions, rather than constituting a transaction by themselves. As I decided above, although the Share Sale Agreement contained or ordained several transactions, it was by itself a whole transaction, in consequence of the carrying out of which the Loan Note was to be parted with. I prefer to rest my decision in relation to subsection (5) on that basis.

(e) Conclusion on Second Issue

115. I therefore conclude that the Collector was right in refusing relief by reason of section 45(5) as well.

Third issue: Ramsay approach

(a) Classic formulation

116. I eventually come to Ramsay. I do not propose to detail or analyse this principle or approach beyond that which is necessary to deal with the issues and arguments raised in this appeal. The classic statement of the Ramsay approach may be found in the speech of Lord Brightman in Furniss v Dawson [1984] AC 474, 527C-E:

"First, there must be a pre-ordained series of transactions; or, if one likes, one single composite transaction. This composite transaction may or may not include the achievement of a legitimate commercial (i.e. business) end. The composite transaction does, in the instant case; it achieved a sale of the shares in the operating companies by the Dawsons to Wood Bastow [the purchaser]. It did not in Ramsay. Secondly, there must be steps inserted which have no commercial (business) purpose apart from the avoidance of a liability to tax - not "no business effect." If those two ingredients exist, the inserted steps are to be disregarded for fiscal purposes. The court must then look at the end result. Precisely how the end result will be taxed will depend on the terms of the taxing statute sought to be applied."

117. Ramsay came to the courts of Hong Kong and made its "debut" in our Court of Final Appeal in Shiu Wing Ltd. v Commissioner of Estate Duty [2000] 3 HKLRD 76, an estate duty planning case also involving companies in the Shiu Wing group and the Pong's family. In the separate judgments delivered in that case, the Ramsay principle was analysed and the relevant case law examined. Sir Anthony Mason NPJ explained at p.99D-H of his judgment the principle thus:

" The principle, according to the House of Lords, is both a rule of statutory construction applicable to revenue statutes and an approach to the analysis of the facts. At first instance, Findlay J. had difficulty in seeing the principle as a rule of construction. His Lordship considered that it was in truth a way of viewing or, as I would express it, a way of analysing the facts. This element of the Ramsay principle may be expressed by saying that where there is a single pre-ordained, composite transaction intended to be carried out in its entirety, the court is not compelled for tax purposes to ignore its composite character and to break it up into its individual constituent steps so that the statute is then applied to those individual steps separately. If the purpose of intermediate steps in the composite transaction was fiscal they may be disregarded. The composite transaction may then have consequences which bring it within a charging provision of the statute.

As the House of Lords has said on a number of occasions, Ramsay is also a rule of construction. The point was well made by Judge Learned Hand in Gilbert to which reference has already been made. In that case (at 411), in a passage which includes that quoted by Lord Wilberforce in Ramsay, Judge Learned Hand expressed the purposive approach to statutory construction."

118. The decision in Shiu Wing also demonstrated an important limitation of the Ramsay principle or approach. Where intermediate tax avoidance steps were disregarded under the principle, the relevant statute must then be applied to the end result of the actual transaction. In applying the principle, it is not legitimate to alter the character of a particular transaction in a series or to pick bits out of it and reject other bits. It is not permissible to "reconstitute" or "radically re-characterize" the remaining transactions to give them another character: See pp.90J to 91C of Bokhary PJ's judgment and pp.105B to 106H of Sir Anthony's judgment. So in Shiu Wing, whilst certain transactions involving a circular movement of money were disregarded by the Court of Final Appeal as being purely fiscal in nature, the Court refused to embrace the suggested reconstitution of the remaining transactions so as to fit the end result into the taxing legislation.

119. What is of particular significance of this decision to our present appeal is that first, the Court of Final Appeal confirmed that the Ramsay principle or approach is applicable in Hong Kong and is one of general application to revenue legislation. Second, the Court emphasised that the principle is still at the stage of development and the case was decided, by agreement of the parties involved, in accordance with the then existing case law: See pp. 91C-E and 100H. Third, no radical reconstitution or re-characterisation of the end result or the remaining transactions after disregarding the artificial ones is permitted. For a general discussion on the principle's earlier development in UK, see Millet, Artificial Tax Avoidance: the English and American Approach [1986] BTR 327. For a discussion of the Shiu Wing decision, see Millet, Ramsay comes to Hong Kong (2001) 31 HKLJ 20.

(b) Macniven v Westmoreland Investments Limited

120. However, as anticipated by the Court of Final Appeal in Shiu Wing, the law in England did not stand still for too long. In what many may regard as the most important decision by the House of Lords in relation to the Ramsay principle after Ramsay itself (W T Ramsay v Inland Revenue Commissioners [1982] AC 300) and Furniss v Dawson, the House of Lords, particularly Lord Hoffmann, in Macniven v Westmoreland Investments Limited [2001] 2 WLR 377, explained the whole principle or approach, as well as the relevant UK case law, in a new light, and in the process, further developed and nurtured the same into a mature and established feature of the English common law.

121. As I see it, the approach is now put firmly on the basis of statutory construction of the relevant revenue legislation. What is new in Macniven is this. The classic formulation of the approach is centred on the Court's disregard of pre-ordained transactions which are not "real" but "artificial" and serve no valid or commercial purpose other than a fiscal one. The essence of the approach is that it looks at transactions as a whole rather than only individually and determines whether they serve any real or commercial purpose or are really "artificial" transactions designed purely to obtain fiscal advantages. That assumes, however, that one can tell what transactions are "real", and what transactions are "artificial". The approach also assumes that transactions that serve no valid "commercial" purpose must be disregarded as a matter of statutory construction based on which the approach claims its legitimacy. Macniven, however, pointed out that before one can tell whether a transaction or a series of transactions is/are "real" or "artificial", one has to find out from the relevant taxing legislation itself what is the relevant "concept" based on which the legislation imposes taxation and which the taxpayer is allegedly trying to get round. For "artificial" is a relative word and can only have meaning by reference to something called "real". Before that "something" is identified, it is meaningless and indeed erroneous to start labelling other things as "artificial".

122. Moreover, according to Macniven, if the relevant legislative "concept" is a "legal" as opposed to a "commercial" one with no "commercial" connotation, a transaction or transactions should not be condemned and disregarded merely because it or they does not or do not serve any "commercial" purpose, which is not something required by the relevant statutory "concept" in the first place.

123. Lord Hoffmann explained at pp.389H to 390G the true position thus:

"39 My Lords, I venture to suggest that some of the difficulty which may have been felt in reconciling the Ramsay case with the Duke of Westminster's case arises out of an ambiguity in Lord Tomlin's statement that the courts cannot ignore "the legal position" and have regard to "the substance of the matter". If "the legal position" is that the tax is imposed by reference to a legally defined concept, such as stamp duty payable on a document which constitutes a conveyance on sale, the court cannot tax a transaction which uses no such document on the ground that it achieves the same economic effect. On the other hand, if the legal position is that tax is imposed by reference to a commercial concept, then to have regard to the business "substance" of the matter is not to ignore the legal position but to give effect to it.

The real world

40 The speeches in the Ramsay case [1982] AC 300 and subsequent cases contain numerous references to the "real" nature of the transaction and to what happens in "the real world". These expressions are illuminating in their context, but you have to be careful about the sense in which they are being used. Otherwise you land in all kinds of unnecessary philosophical difficulties about the nature of reality and, in particular, about how a transaction can be said not to be a "sham" and yet be "disregarded" for the purpose of deciding what happened in "the real world". The point to hold on to is that something may be real for one purpose but not for another. When people speak of something being a "real" something, they mean that it falls within some concept which they have in mind, by contrast with something else which might have been thought to do so, but does not. When an economist says that real incomes have fallen, he is not intending to contrast real incomes with imaginary incomes. The contrast is specifically between incomes which have been adjusted for inflation and those which have not. In order to know what he means by "real", one must first identify the concept (inflation adjustment) by reference to which he is using the word.

41 Thus in saying that the transactions in the Ramsay case were not sham transactions, one is accepting the juristic categorisation of the transactions as individual and discrete and saying that each of them involved no pretence. They were intended to do precisely what they purported to do. They had a legal reality. But in saying that they did not constitute a "real" disposal giving rise to a "real" loss, one is rejecting the juristic categorisation as not being necessarily determinative for the purposes of the statutory concepts of "disposal" and "loss" as properly interpreted. The contrast here is with a commercial meaning of these concepts. And in saying that the income tax legislation was intended to operate "in the real world", one is again referring to the commercial context which should influence the construction of the concepts used by Parliament." (my emphasis)

124. Commenting on the two-stage approach in the classic statement of Lord Brightman already referred to above, Lord Hoffmann explained at p.393A-B and C-E the true position as follows:

"... If the statutory language is construed as referring to a commercial concept, then it follows that steps which have no commercial purpose but which have been artificially inserted for tax purposes into a composite transaction will not affect the answer to the statutory question ...

49 For present purposes, however, the point I wish to emphasise is that Lord Brightman's formulation in the Furniss case, like Lord Diplock's formulation in the Burmah case, is not a principle of construction. It is a statement of the consequences of giving a commercial construction to a fiscal concept. Before one can apply Lord Brightman's words, it is first necessary to construe the statutory language and decide that it refers to a concept which Parliament intended to be given a commercial meaning capable of transcending the juristic individuality of its component parts. But there are many terms in tax legislation which cannot be construed in this way. They refer to purely legal concepts which have no broader commercial meaning. In such cases, the Ramsay principle can have no application. It is necessary to make this point because, in the first flush of victory after the Ramsay, Burmah and Furniss cases, there was a tendency on the part of the Inland Revenue to treat Lord Brightman's words as if they were a broad spectrum antibiotic which killed off all tax avoidance schemes, whatever the tax and whatever the relevant statutory provisions." (my emphasis)

125. Lord Hoffmann therefore demarcated the limits of the Ramsay principle as follows (at pp.395F-396B):

"58 The limitations of the Ramsay principle therefore arise out of the paramount necessity of giving effect to the statutory language. One cannot elide the first and fundamental step in the process of construction, namely to identify the concept to which the statute refers. I readily accept that many expressions used in tax legislation (and not only in tax legislation) can be construed as referring to commercial concepts and that the courts are today readier to give them such a construction than they were before the Ramsay case. But that is not always the case. Taxing statutes often refer to purely legal concepts. They use expressions of which a commercial man, asked what they meant, would say "You had better ask a lawyer". For example, stamp duty is payable upon a "conveyance or transfer on sale": see Schedule 13, paragraph 1(1) to the Finance Act 1999. Although slightly expanded by a definition in paragraph 1(2), the statutory language defines the document subject to duty essentially by reference to external legal concepts such as "conveyance" and "sale". If a transaction falls within the legal description, it makes no difference that it has no business purpose. Having a business purpose is not part of the relevant concept ...

59 Even if a statutory expression refers to a business or economic concept, one cannot disregard a transaction which comes within the statutory language, construed in the correct commercial sense, simply on the ground that it was entered into solely for tax reasons. Business concepts have their boundaries no less than legal ones." (my emphasis)

126. The other law lords, two of whom delivered shorter concurring speeches, all expressed agreement with the judgment of Lord Hoffmann. Applying those principles, the law lords concluded that the concept used by the legislation in that case, namely, "payment" of interest, was really a legal concept, and the Ramsay approach had no application at all to the facts of that case, which involved a circular movement of money to create, some may have said, "artificially", a "payment" of interest, so as to obtain a tax advantage.

127. I do not perceive any contradictions between the approach of the Court of Final Appeal in Shiu Wing and that of the House of Lords in Macniven. The latter case simply provides a theoretical explanation for what has been done before by the Courts, and the same exercise may be done in relation to the actual decision in Shiu Wing which according to Macniven may be regarded as having involved the concepts of "gift" and "property situate outside Hong Kong". As pointed out above, Shiu Wing was expressly decided on the then existing law, and left open the possibility of further development on this branch of the law. In the present case, I must apply the law as it presently is. Although a House of Lords decision is strictly speaking not binding on this Court, it must carry the highest persuasive authority particularly in relation to a subject like Ramsay. I see no good reason in not following the approach in Macniven.

(c) Proper approach

128. In short, when faced with a Ramsay argument, a court should first construe the relevant revenue legislation to identify the concept to which the legislation refers. If it is a legal concept that is employed, then so long as the transaction falls within the legal description, it cannot be disregarded for the purpose of the legislation even though it serves no business purpose. In other words, the Ramsay approach will have no application in such a case. On the other hand, if the legislation employs a commercial concept, then one may apply the Ramsay approach to disregard a transaction or some or all of the transactions in a pre-ordained series which does not or do not have the relevant commercial sense or purpose required by the concept employed by the legislation, bearing in mind that even commercial/business concepts have their own boundaries as well. Once the infringing transaction(s) is/are disregarded, one will then look at the end result without radical re-characterisation or re-constitution to see whether it is caught by the relevant revenue legislation.

129. Before I apply the relevant principles to the present case, I would just refer to the general reservation regarding the applicability of the Ramsay principle to stamp duty legislation on the ground that stamp duty is a form of taxation on instruments which, as a matter of construction, fall within the categories set out in the heads of charge specified in the legislation: See, for instance, Willoughby & Halkyard, Encyclopaedia of Hong Kong Taxation Vol.1 (Stamp Duty) (loose-leaf ed.) paras. I[402] to I[412]; Monroe and Nock on The Law of Stamp Duties (7th ed.) paras. 1-31 to 1-49. The tax is enforced and administered solely in terms of the construction of documents followed by a strict application of the law. In those circumstances, the scope for application of the Ramsay approach may not be as wide as that in other areas of revenue legislation. This may be so, but the Ramsay principle as a general approach of statutory construction applicable to all revenue legislation cannot be doubted. Whilst the scope for application in relation to instruments chargeable with stamp duty may be restricted by the form of taxation itself, the potential application of the approach to provisions in the legislation relating to exemptions and relief, as demonstrated by the facts in the present case, must be as far-reaching as that obtaining in other areas of revenue legislation.

(d) Present case

130. In the present case, it was firstly argued on behalf of the Collector that applying the Ramsay principle, the allotment of the 100,000 'B' shares of Prepared in favour of Super Charge in return for the assignment of the Loan Note should be disregarded. This was because the allotment had no business purpose whatsoever apart from the avoidance of tax liability, namely, to create an artificial legal association between Shiu Wing and Arrowtown for the purpose of obtaining group relief under section 45. It was said that the rights conferred on the holders of the 'B' shares were nominal rather than real. They had no right to vote. Their entitlement to a fixed 5% dividend was conditional on the profits of the company for the year exceeding $1 million billion! The right to a distribution on a winding up was also as illusory since it was dependent on the holders of the other classes of shares in the company having first received a distribution of $1,000 billion per share! Although on the face of it, the power of the holders of the 'B' shares to appoint a director had some commercial significance, under the articles Prepared could at any time buy back the whole of the 'B' shares for a price of $1,000.

131. Therefore it was argued on behalf of the Collector that the allotment of these shares in favour of Super Charge should be disregarded by the application of the Ramsay principle, and the end result would be that after the sale of 980 'A' shares by Super Charge to Calm Seas, Shiu Wing and Arrowtown ceased to be associated companies within the meaning of section 45, and as a result no intra-group transfer relief could be claimed.

132. I disagree. In accordance with the approach laid down in Macniven, the relevant "concept" here is "associated body corporate": Section 45(2). This is a legal concept which is statutory defined by reference to beneficial ownership of not less than 90% of the "issued share capital", which is in turn another legal concept. "Issued share capital" has been construed by Megarry J (as he then was) in Canada Safeway Limited v Inland Revenue Commissioners [1973] 1 Ch 374 as referring to the nominal value of the shares, as opposed to their actual or market value. The correctness of this decision was accepted by both sides. See also the decision of the Full Supreme Court of Queensland in Re Quetel Pty Ltd. v Commissioner of Stamp Duties (Qld) 91 ATC 4771 which accepted that an arrangement of share capital similar to that found in the present case could get round the definition of "issued share capital" and "associated companies" in provisions modelled on the English provisions, but struck down the same by the employment of specific anti-avoidance provisions in the stamp duty legislation in Queensland. It may be added at this juncture that the present scheme would not work in UK because apart from the 90% issued share capital requirement, other extra statutory requirements have been added to the relevant provisions to determine qualification for intra-group transfer relief in the UK legislation.

133. But returning to the present case, in my judgment, since we are dealing with purely legal concepts with either a statutory definition or a well-established meaning according to case law, there is simply no scope for the application of the Ramsay approach to the concepts of "associated" companies and "issued share capital". In other words, there is no way one can disregard the 'B' shares (as serving no business purpose or having no commercial sense) in determining the "issued share capital" of Prepared. Having a business purpose is no part of the concept "issued share capital". Since, subject to one argument which I shall deal with below, the Collector did not go so far as to suggest - and quite rightly so - that the 'B' shares were a sham or the allotment of these shares in favour of Super Charge was a sham transaction, that must be the end of the matter.

134. In any event, whatever intermediate steps one could manage to eliminate by the application of the Ramsay principle in the present case, the bottom line is that the 'B' shares were and are still there, the existence of which cannot be ignored. A radical re-characterisation or re-constitution of the end result would be required in order to satisfy the statutory definition of "associated" bodies corporate in section 45(2) so as to deny relief. Lord Goodhart conceded this difficulty almost in so many words during his oral submission to this Court. Thus even under the "classic" formulation of the doctrine under Furniss v Dawson, as applied by the Court of Final Appeal in Shiu Wing, the Collector's argument cannot succeed.

135. In conclusion, I hold that this argument of the Collector based on Ramsay fails.

(e) What is a share?

136. But on behalf of the Collector, two further arguments said to be based on Ramsay-cum-Macniven were raised by Lord Goodhart. First, it was argued, for the first time during Lord Goodhart's oral submission to the Court, that the so-called 'B' shares did not qualify as "shares" in a company limited by shares at all. The definition of a "share" given by Farwell J in Borland Trustee v Steel Brothers & Co., Limited [1901] 1 Ch 279, 288, which was approved by the Court of Appeal in In re Paulin [1935] 1 KB 26, was relied on:

"A share, according to the plaintiff's argument, is a sum of money which is dealt with in a particular manner by what are called for the purpose of the argument executory limitations. To my mind it is nothing of the sort. A share is the interest of a shareholder in the company measured by a sum of money, for the purpose of liability in the first place, and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders inter se in accordance with s.16 of the Companies Act, 1862 ... A share is not a sum of money settled in the way suggested, but is an interest measured by a sum of money and made up of various rights contained in the contract, including the right to a sum of money of a more or less amount."

137. It was argued, by reason of the various matters already said about the 'B' shares, that they did not really fall within the above definition at all.

138. I must confess my difficulty in understanding how this argument, regardless of whether it was right or wrong, could be subsumed under a discussion on the Ramsay/Macniven approach. In so far as it was suggested that Macniven provided some warrant for treating "issued share capital" as a commercial rather than a legal concept, the short answer is that it did not, and I reject this argument. If "issued share capital" remains as it does a purely legal concept, then according to Macniven the Ramsay approach will have no application, which in my judgment is indeed the case.

139. But in any event, I am unable to see how the 'B' shares fail the definition of a share. The shares have a nominal value. They were issued as fully paid-up shares. They carry rights as set out in the articles, including the right to participate in the winding up of the company. $1 billion million and $1,000 billion may be astronomical figures, but they are real figures which cannot be ignored. The right to appoint a director is a real right, and remains an important right unless and until the 'B' shares are compulsorily bought back. This, so I have been told, has not happened, and indeed under the arrangement should not have happened at least within 2 years of the transfer of land in order to obtain relief under section 45. All these rights may or may not be regarded as commercially valuable. But then the Court does not sit here to evaluate the commercial value of shares. I reject this argument.

(f) Shop and Store re-visited

140. Second, Lord Goodhart argued that the approach of the House of Lords in Macniven, with its emphasis on identifying the relevant concept in a taxing statute and particularly the difference between a legal and a commercial concept, warranted a re-visit of the majority decision in Shop and Store. He argued that the relevant concept in that case was "consideration for the transfer" which was a commercial as opposed to a legal concept, and viewed from that angle, the concept was capable of including as part of the consideration what a transferor received by subsequently dealing with the original consideration given to him by the transferee of the property. In the context of the present case, adopting such an approach, one should conclude that not only the DC Agreement, but also the Shareholders Deed, constituted part of the consideration for the transfer.

141. I do not accept this argument. In my reading of Shop and Store, not only the minority but also the majority of the House of Lords in that case already regarded "consideration for the transfer" as a commercial rather than a strict legal concept. They, however, parted company on what they respectively thought businessmen or commercial people would call the money the transferor received from selling the shares in the transferee company to the issuing house.

142. Perhaps the best answer to Lord Goodhart's argument is that as Lord Hoffman reminded us in Macniven (at p. 396A), even "[b]usiness concepts have their boundaries no less than legal ones". The majority simply concluded that to call the proceeds of sale of the shares the consideration for the transfer of the properties would have stretched the phrase "consideration for the transfer" beyond its legitimate limits as a matter of statutory construction.

143. I shall not repeat here what I have already said in relation to the decision in Shop and Store above. Suffice it for me to say, nothing in Macniven made me change my mind in relation to Shop and Store. I reject this second argument as well.

(g) Conclusion on Third Issue

144. In short, in my judgment, all arguments advanced by or on behalf of the Collector under the heading of Ramsay fail. But in the event, so far as the "end result" of this appeal is concerned, this is of no significance, the Collector having succeeded on the first two main issues raised in this appeal as decided above.

Conclusion

145. It has been said on more than one occasion in relation to the evolution of the Ramsay approach that we may not have yet reached the end of the journey. What Lord Hoffman said in Macniven may not necessarily mark the end of the road. That may well be so. But so far as this judgment is concerned, I believe I have reached the end of my journey.

146. It only remains for me to formally answer the question posed by the Collector in his Case Stated by concluding that the Collector was correct in rejecting the Appellant's claim for relief from ad valorem stamp duty in respect of the Memorandum of Agreement under sections 29H(3) and 45 of the Ordinance. In accordance with section 14(3) and (4) of the Ordinance, I assess the ad valorem stamp duty chargeable on the Memorandum of Agreement at the same amount assessed by the Collector, i.e. $349,658,565, and I order that the Collector's assessment be confirmed. Accordingly, I dismiss this appeal.

147. In the light of my decision, no stamp duty already paid by Arrowtown is repayable by the Collector. Therefore the question of payment of any interest on the stamp duty paid, a question which Mr. Goldberg with the agreement of Lord Goodhart specifically reserved his submission on, does not arise.

148. I make an order nisi that the Appellant pay the Respondent the costs of this appeal to be taxed if not agreed, and that there be a certificate for two counsel. This order nisi as to costs will become an absolute order after the expiry of a period of 14 days from the date this judgment is handed down unless either party applies to vary the same within that period of time.

149. It only remains for me to thank leading and junior counsel on both sides as well as their respective teams for the very helpful assistance they rendered to the Court in this appeal.