RE HISTORIC TW INC.

DCMP 712/2018

[2019] HKDC 18

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO 712 OF 2018

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DECISION

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1.  By an ex parte originating summons, the Applicant applies for:

(1)  a declaration that the Applicant be entitled to all the legal and beneficial title and interests of and in the Property; and

(2)  an order under section 45 of the Trustee Ordinance, Cap 29 (“TO”) to vest the legal and beneficial title and interests of and in the Property in the Applicant.

Background

2.  The essential background of this case may be summarised as follows:

(a)  On 29 March 1979, Time, Incorporated (“Time NY”) purchased the Property.  At that time, Time NY was a corporation formed and existed under New York law and having a place of business in Hong Kong.

(b)  In 1983, Time NY merged with and into Time Delaware Incorporated, a corporation incorporated in Delaware.  Time Delaware Incorporated then changed its name to “Time Incorporated”. 

The merger and name change was effected pursuant to an Agreement and Plan of Merger dated 18 October 1983 (“the Merger Agreement”) and in accordance with the laws of both New York and Delaware.  According to the Applicant’s New York attorney, all assets of Time NY (including the Property) had vested in the surviving corporation by operation of New York law as from 7 December 1983 when the merger and name change took effect.  The Applicant’s Delaware attorney also confirmed that the Property had vested in Time Incorporated under Delaware law as from that date. 

(c)  In 1989, Time Incorporated changed its name to “Time Warner Inc” after another corporation merged with and into it.  According to the Applicant’s Delaware attorney, the Property continued to be vested in the same corporation but under a new name.

(d)  In 1996, Time Warner Inc changed its name to “Time Warner Companies Inc” after several corporations merged with and into it.  According to the Applicant’s Delaware attorney, the Property continued to be vested in the same corporation but under a new name.

(e)  Later in 1996, Time Warner Companies Inc changed its name again to “Time Warner Companies, Inc”.  According to the Applicant’s Delaware attorney, the Property continued to be vested in the same corporation but under a new name.

(f)  In 2009, Time Warner Companies, Inc merged with and into its parent company, the Applicant. 

The merger was determined and approved by the Applicant’s board of directors on 17 February 2009 (“the Board Resolutions”) and effected in accordance with Delaware law.  According to the Applicant’s Delaware attorney, the Property has been vested in the Applicant by operation of Delaware law since the merger became effective on 24 February 2009.

3.  Notwithstanding the above mergers and name changes, Time NY remains the registered owner of the Property on the record of the Land Registry in Hong Kong. 

4.  By this action, the applicant is asking the Hong Kong court to give effect to the devolution by operation of foreign law.

Why is this application necessary?

5.  Section 4 of the Conveyancing and Property Ordinance, Cap 219 (“CPO”) provides that:

“(1) A legal estate in land may be created, extinguished or disposed of only by deed.

(2) This section does not apply to–

(a) an assent in writing by a personal representative;

(b) a disclaimer made in accordance with section 59 of the Bankruptcy Ordinance (Cap 6) or section 268 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32);

(c) a surrender by operation of law, including a surrender which may, by law, be effected without writing;

(d) the grant, disposal or surrender of a lease taking effect in possession for a term not exceeding 3 years (whether or not the lessee is given power to extend the term) at the best rent which can be reasonably obtained without a premium;

(e) other assurances not required by law to be made in writing;

(f) a receipt not required by law to be under seal;

(g) a vesting order or vesting declaration by a court or other competent authority;

(h) a creation, extinguishment or disposal of a legal estate in land by operation of law.”

6.  It is the Applicant’s case that the mergers and name changes recounted above were not effected by deed.  Furthermore, it is conceded that the Applicant may not invoke section 4(2)(h) to dis-apply section 4(1) because “by operation of law” therein refers to Hong Kong law only (as provided in section 3 of the Interpretation and General Clauses Ordinance, Cap 1)[1].

7.  According to the Applicant, the only remedy left to it is section 45(g) of the TO.  That section provides, insofar as it is relevant for present purpose, that:

“In any of the following cases, namely–

…

(g) where land or any interest therein is vested in a trustee whether by way of mortgage or otherwise, and it appears to the court to be expedient,

the court may make an order (in this Ordinance called a vesting order) vesting the land or interest therein in any such person in any such manner and for any such estate or interest as the court may direct…”

The application

8.  At the second hearing, the Applicant submitted that:[2]

(a)  A constructive trust had arisen out of the Merger Agreement constituting Time NY as a trustee for the beneficial owner of the Property.

(b)  As the trust relationship was already established prior to the merger becoming effective and Time NY ceasing to exist, there is no longer an issue with regard to the capacity of Time NY being constituted a trustee.

(c)  The contractual term to vest the assets of Time NY in Time Delaware Incorporated was expressly provided in the Merger Agreement as well as implied by law; on a proper reading of the Merger Agreement, there was indeed a specifically enforceable contract upon which a constructive trust was founded.

(d)  It is expedient for the Court to order the vesting of the legal title of the Property in the Applicant under section 45(g) of the TO.

9.  It is apparent from the above that the Applicant’s argument hinges upon the terms of the Merger Agreement.  However, the version of the agreement then placed before me was unsigned and bore no evidence of payment of stamp duty.[3]

10.  According to section 3(1) of the CPO:

“… no action shall be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged or by some other person lawfully authorized by him for that purpose.”

11.  It is also prescribed under section 15(1) of the Stamp Duty Ordinance, Cap 117 (“SDO”) that:

“… no instrument chargeable with stamp duty shall be received in evidence in any proceedings whatsoever except–

(a) criminal proceedings;

(b) civil proceedings by the Collector to recover stamp duty or any penalty payable under this Ordinance,

or be available for any other purpose whatsoever, unless such instrument is duly stamped.”

12.  The hearing was adjourned for the Applicant to procure proper evidence before the court.

13.  On 27 December 2018, the Applicant filed the second affidavit of its officer, Mr Phillips (“the Second Affidavit”).  A signed copy of the Merger Agreement was exhibited thereto as Exhibit “DSP-10”.  The deponent further deposed to the following:

“5. Despite having carried out an exhaustive search, I have not been able to locate an original copy of the Merger Agreement. I verily believe that due to the long lapse of time, several subsequent mergers, office relocations and a fire at an offsite storage facility where records were kept, the original Merger Agreement can no longer be found.

Stamp Duty

6. Clause 1.1 of the Merger Agreement provided that the Surviving Corporation, then known as Time Delaware Incorporated, shall succeed to all the rights assets liabilities and obligations of Time NY.

7. I am advised by our Hong Kong legal advisers and verily believe that:

(a) so far as the Property and the applicable laws of Hong Kong are concerned, the Merger Agreement operated as an agreement for sale by Time NY to transfer and vest the Property in the Surviving Corporation upon merger;

(b) at the time of the adoption of the Merger Agreement, an agreement for sale of real property in Hong Kong was not chargeable with stamp duty under the Stamp Duty Ordinance, Cap 117 of the laws of Hong Kong (“Ordinance”); in fact, ad valorem stamp duty was paid on the Deed of Assignment [Exhibit DSP-3] of the Property as shown by the endorsement at the top right corner on page 1 thereof;

(c) an agreement for sale in respect of residential properties only became chargeable with ad valorem stamp duty as a result of amendments made in 1992, mainly with the addition of Part IIIA (sections 29A to 29H) and head 1(1A) in the First Schedule of the Ordinance;

(d) the newly added section 29A(5) specifically excluded the application of the amendments of 1992 to an agreement for sale in respect of non-residential property; this provision remained in effect until 23 February 2013 when the Stamp Duty (Amendment) Ordinance 2014 required all agreements for sale, in respect of residential and non-residential properties to be charged with ad valorem stamp duty;

(e) had the Merger Agreement, signed in 1983, been submitted to the Stamp Office of the Hong Kong Inland Revenue Department for adjudication today, it would have been adjudicated “not chargeable with duty”, but the Stamp Office would only stamp or adjudicate an original document and never a copy thereof.

8. Due to the unavailability of the original Merger Agreement, the Applicant’s Hong Kong solicitors have not been able to procure an adjudication from the Stamp Office that the Merger Agreement was not chargeable with stamp duty based on my understanding of Hong Kong law.”

14.  By their letter dated 27 December 2018, the Applicant’s solicitors indicated that they would make no request for a further hearing.

15.  Whilst the Applicant has now exhibited a signed copy of the Merger Agreement (in purported satisfaction of section 3(1) of the CPO), the Second Affidavit is, in my view, seriously defective.

16.  Order 41, rule 5(1) of the Rules of the District Court, Cap 336H,generally provides that an affidavit may contain only such facts as the deponent is able of his own knowledge to prove.  This should be contrasted with an affidavit sworn for the purpose of being used in interlocutory proceedings which may contain statements of information or belief provided that the sources and grounds thereof is stated: Order 41, rule 5(2). 

17.  Mr Phillips’ qualification is stated in paragraph 1 of his first affidavit filed herein.  He is admitted to practice law in several States in the United States of America.  It does not appear that he has the necessary local qualification and experience to depose to matters pertaining to Hong Kong law and practice as stated in his Second Affidavit.

18.  In particular, there is nothing (eg evidence of enquiries made with the Stamp Office) to support the allegation in paragraphs 7(e) and 8 of the Second Affidavit that the Collector will not express his opinion under section 13 of the SDO with reference to the Merger Agreement without the production of the original agreement. 

19.  In any event, such allegation is clearly at odds with section 18B(1) of the SDO which is in these terms:

“In this Ordinance, any reference to an instrument as one being or required to be presented or tendered to the Collector for stamping shall be construed as including a reference to a copy of the instrument if it is shown to the satisfaction of the Collector that it is impracticable in the circumstances of the case that the instrument be or be required to be so presented or tendered (as the case may be).”

20.  Whilst the Applicant may be right that agreements for sale might generally be non-dutiable prior to 1992,[4] the Merger Agreement may be chargeable with stamp duty under section 27(1) of the SDO as a voluntary disposition.  That section provided in 1983 and still provides that:

“Any conveyance of immovable property operating as a voluntary disposition inter vivos shall be chargeable with stamp duty as a conveyance on sale, with the substitution of the value of the property conveyed for the amendment or value of the consideration for the sale.”

21.  In my view, it is after all not for this court to decide whether the Merger Agreement is chargeable with stamp duty or not.  There is an adjudication mechanism under section 13 of the SDO for the Collector to express his opinion as to whether an executed instrument is chargeable with stamp duty and, if so, the amount chargeable.  If the Collector is of the opinion that the instrument is not chargeable with stamp duty, the instrument may be stamped with a stamp or by way of a stamp certificate denoting that the instrument is not chargeable with stamp duty under section 13(3).

22.  Thus, the only matter that I need to be concerned with is whether the Merger Agreement has been “duly stamped” in terms of section 15(1) of the SDO.  As the copy Merger Agreement tendered in evidence is not duly stamped, it may not be received in evidence.

23.  If the Merger Agreement is chargeable with stamp duty, it remains to be seen whether the other instruments effecting the subsequent mergers and name changes (eg the Board Resolutions) are likewise chargeable.

Disposition

24.  For the above reasons, I am presently unable to entertain the Applicant’s argument on section 45(g) of the TO without reference to the terms of the Merger Agreement.  The ex parte originating summons is therefore dismissed.