ARROWTOWN ASSETS LTD v. THE COLLECTOR OF STAMP REVENUE

CACV 118/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 118 OF 2002

(ON APPEAL FROM DCSA 52 OF 2000)

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J U D G M E N T

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Hon. Cheung J.A. :

Surrender and regrant of land

1. Shiu Wing Steel Limited ("Shiu Wing") was the registered owner of a piece of land in Junk Bay, Kowloon. The land was known as 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 ("the properties"), having a total area of approximately 539,790 square feet.

2. By the end of 1996, Shiu Wing reached an 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 (the "Development Land"). The Development Land was to be developed for non-industrial purposes as part of the plan to develop Tseung Kwun O into a new town. Shiu Wing had to pay a premium of $5,853,000,000 to the Government in order to obtain the Development Land.

Heads of Agreement

3. Two property developers, namely, the Sun Hung Kai Properties group and Swire group were interested in participating in the development of the Development Land. Shiu Wing then entered into an agreement with these parties. The terms of the agreement were contained in a Heads of Agreement dated 3rd January 1997 ("Heads of Agreement") which 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"). Calm Seas was a vehicle of New Town and Swire.

4. The scheme under the Heads of Agreement was for Shiu Wing to transfer the Development Land to one of its subsidiary companies. The subsidiary company would pay the sum of $12,714,856,874 to Shiu Wing for the transfer of the Development Land (the "Initial Consideration"). It would also pay Shiu Wing 12% of the Surplus Proceeds arising from the redevelopment project of the Development Land (the "Deferred Consideration").

5. Calm Seas would buy 98% of the entire share capital of this subsidiary company for $12,460,559,737. This money was to be paid to Shiu Wing by Calm Seas in the following manner :

i) $1,869,083,960 would be paid as deposit and part payment for the purchase of the shares ("the initial deposit").

ii) $5,853,000,000 would be paid as deposit and part payment for the purchase of the shares ("the further deposit"). Shiu Wing would use this money to pay the premium required for the re-grant of the Development Land.

iii) $4,738,475,777 being the balance of the purchase price of the shares.

6. The completion of the sale and purchase of the shares was conditional upon the Development Land being assigned to the subsidiary company immediately following the land exchange between Shiu Wing and the Government.

7. 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 Heads of Agreement and the due performance of 50% of Calm Seas' obligations under the Heads of Agreement up to and including completion but not thereafter.

8. The Heads of Agreement also provided 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 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 Cap. 117 ("the Ordinance") by the holding of non-voting and non-participating deferred shares in the subsidiary company, and to the application for relief from ad valorem stamp duty under section 45 (Clause 8).

9. 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)).

10. Under the Heads of Agreement the stamp duty for the assignment of the Development Land would be borne by the subsidiary company but those related to the transfer of shares would be borne by Calm Seas.

Formation of subsidiary companies

11. The initial deposit was paid by Calm Seas to Shiu Wing. Four subsidiary companies were formed by Shiu Wing, namely Eastview Holdings Limtied ("Eastview"), Super Charge Development Limited ("Super Charge"), Prepared Holdings Limited ("Prepared"), and Arrowtown Assets Limited ("Arrowtown"), the Appellant in this appeal, each holding 100% of the issued share capital of the next one, with Shiu Wing as the parent company at the one end and Arrowtown as the ultimate subsidiary company at the other.

Share Sale Agreement

12. A Sale and Purchase Agreement dated 7th April 1997 (the "Share Sale Agreement") was eventually 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 modified the agreement reached in the Heads of Agreement.

13. The Share Sale Agreement recited, among other things, about the land exchange and that Shiu Wing had incorporated the four subsidiary companies.

14. Clause 3 provided that Shiu Wing shall procure the sale of 980 'A' ordinary shares of Prepared (the "Sale Shares") by Super Charge in favour of Calm Seas for the consideration of HK$12,460,559,737. The initial deposit of $1,869,083,960 was to be paid to Shiu Wing (on the account of Super Charge). This was treated as paid. The further deposit of $5,853,000,000 was to be paid to Shiu Wing's solicitors by way of a cashier order payable to the Government. Shiu Wing's solicitors undertook to apply this sum for the payment of the land premium. The balance of $4,738,475,777 was to be paid to Super Charge.

The conditions

15. Under Clause 5.1, completion of the Share Sale Agreement was to be conditional upon,

1) the assignment of the Development Land by Shiu Wing to Arrowtown, the ultimate subsidiary company for $12,714,856,874 together with the Deferred Consideration.

2) a reorganization being effected in accordance with Schedule 3 prior to the Land Exchange i.e. the surrender of the properties by Shiu Wing to the Government and the regrant by the Government to Shiu Wing of the Development Land.

The reorganization

16. The reorganization involved, among other things, the following :

1) the reorganization of Super Charge and its immediate subsidiary company, Prepared. Prepared, whose authorized share capital had one class of shares, would now have two classes of shares. The authorized share capital would become 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 would change from 1 share of US$1 per share to 1,000 'A' shares and 100,000 'B' shares (all of HK$0.01 each), all to be owned beneficially by Super Charge.

2) Simultaneous with the assignment of the Development Land by Shiu Wing to Arrowtown,

a) Shiu Wing should enter into a loan agreement with Arrowtown in which Shiu Wing agreed that the Initial Consideration of $12,714,856,874 by Arrowtown to Shiu Wing, was to be left outstanding as a debt due to Shiu Wing ("the Loan").

b) Shiu Wing should assign the Loan to its immediate subsidiary company Eastview in consideration for the issue of shares in Eastview. 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. Shiu Wing should then procure Super Charge to 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.

17. The Loan Note was to stay with Prepared.

The documents to be delivered

18. Under Clause 5.3, upon completion of the sale of the Sale Shares Shiu Wing had to deliver to Calm Seas, among other things, the following documents :

1) an agreement executed by Shiu Wing and Arrowtown for the payment of the Deferred Consideration ("the DC Agreement"), the terms of which were contained in a schedule to the Share Sale Agreement.

2) a Shareholders Deed between Shiu Wing, Super Charge, Calm Seas, New Town and Swire, a draft of which was annexed to the Share Sale Agreement.

Other terms

19. Under the Share Sale Agreement, Calm Seas agreed that it would co-operate in completing the development of the Development Land through Arrowtown.

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

21. 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).

Steps taken pursuant to the Share Sale Agreement

22. 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 reorganization of the share capital of, and the creation of two classes of shares in, the company.

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

(a) Calm Seas paid Shiu Wing the further deposit of $5,853,000,000 for the purchase of the Sale Shares which was utilized 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 payment of the premium whereby Shiu Wing became the registered owner of the Development Land.

(c) A Memorandum of Agreement ("the 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) The 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 ("the 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 reorganized on 21st and 22nd April 1997, 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").

The result

24. As a result of these steps, Arrowtown became the registered owner of the Development Land. Calm Seas became the controlling shareholder of the issued 'A' share capital of Prepared which wholly owned Arrowtown. Super Charge's 100,000 'B' shares in Prepared is non-voting and non-participating deferred shares. However there is no dispute that Arrowtown and Shiu Wing remain as associated companies. Shiu Wing through the ownership of Eastview, Super Charge and Prepared, is still the beneficial owner of not less than 90% of the issued share capital of Arrowtown as required by section 45(2) of the Ordinance. Because of the two classes of shares in Prepared, Calm Seas holds 0.97% of its issued capital, whereas Super Charge holds 99.03%. And as Shiu Wing wholly owns Supercharge and Prepared wholly owns Arrowtown, the association between Shiu Wing and Arrowtown is maintained.

25. Shiu Wing and Super Charge received a total of $12,460,559,737, about half of which was used by Shiu Wing to pay for the premium required for the land exchange to the Government.

26. 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. However, due to the deteriorating market conditions, no surplus proceeds were paid or expected to be paid to Shiu Wing.

27. Further, the interrelationship of Super Charge and Calm Seas as co-shareholders of Prepared was governed by the Shareholders Deed.

Stamp duty assessment

28. On 23rd April 1997, the Memorandum of Agreement, the Assignment and the DC Agreement were presented to the Collector for adjudication and stamping, and application for stamp duty relief pursuant to sections 29H(3) and 45(1) and (2) of the Ordinance was made.

29. 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.

30. The Collector decided that the transactions in question were caught by the anti-avoidance provisions in section 45(4) and (5) of the Ordinance and the claim for relief under section 45 failed. She held that the Memorandum of Agreement and the DC Agreement were two instruments which together constituted the agreement for sale of the Development Land. 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.

31. 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.

32. 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.

33. Arrowtown appealed against the assessment to the District Court. His Honour Judge Andrew Cheung dismissed the appeal.

The appeal

34. Arrowtown now appeals to this Court.

The Statutory Scheme

35. This appeal is only concerned with the stamp duty payable for the transfer of the Development Land. The sale of the Sale Shares in Prepared by Super Charge to Calm Seas did not attract any stamp duty because Prepared was a BVI company.

36. Under section 4 of the Ordinance an instrument specified in the First Schedule of the Ordinance is chargeable with stamp duty. Head 1(1A) of the First Schedule refers to an "agreement for sale" which is defined by section 29A as, among other things, an instrument in which a person contracts to sell or purchase immovable property.

37. It is common ground that the Memorandum of Agreement is an instrument which is liable to stamp duty. This is because it is the principal instrument of an agreement for sale of immovable property falling within Head 1(1A) in the First Schedule.

Relief from stamp duty

38. Relief from stamp duty is given by section 29(H)(3) if :

1) A conveyance on sale is executed in conformity with the Memorandum; and

2) The conveyance on sale will itself be relieved from duty by section 45 if it were stampable.

39. In this case the Assignment, which was a conveyance on sale, was executed in conformity with the Memorandum. Hence the Memorandum would be relieved from stamp duty, so long as the Assignment would qualify for relief from duty under section 45 of the Ordinance if it were stampable.

40. Section 45 provides relief if the transfer is made by associated companies within a group. Sections 45(1) and (2) of the Ordinance provide that :

“ (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 ..., from one associated body corporate to another, ... where ... the bodies are associated ..."

An associated company is defined by section 45(2). This happens when "one is beneficial owner of not less than 90% of the issued share capital of the other, or a third such body is beneficial owner of not less than 90% of each". Section 45(6) further provides that the ownership may be direct or through another corporate or bodies corporate. Further provisions for determining ownership is set out in the Third Schedule of the Ordinance.

41. There is no dispute that Shiu Wing and Arrowtown were associated companies and the effect of the Memorandum and the Assignment was to convey a beneficial interest in immovable properties from one associated company to another.

42. On this basis, the requirements of sections 45(1) and (2) are satisfied and the Memorandum was not chargeable for stamp duty.

Is the relief excluded?

43. The next step is to see whether the relief provided by section 45(1) and (2) is taken away by the other provisions in section 45. The relevant parts are section 45(4) and (5) which provide that :

“ (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 an outsider 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 purchase or sold).

(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.

44. Section 45(4)(a) is directed towards an arrangement under which the consideration 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).

The three issues

45. The three issues identified by the learned judge were as follows :

(i) Whether any of the consideration for the Memorandum comes from a non-associated company;

(ii) Whether there was any arrangement for any of the consideration to be parted with in a relevant way (within the meaning of section 45(5)); and

(iii) Whether the Ramsay doctrine applies to deny relief under section 45 if it is otherwise available.

Subject to further submissions raised at the late stage of the appeal by Mr. Goldberg Q.C., counsel for Arrowtown, these three issues are also the issues in this appeal. I will deal with these three issues first before I consider the further submissions.

The approach of the parties

46. Before one examines these three issues it is necessary to bear in mind the approach taken by the parties to this appeal.

Arrowtown

47. For Arrowtown it is submitted that the documents in this case provided for and implemented three entirely distinct transactions in the following order :

(1) The Land Exchange : by this transaction Shiu Wing surrendered the properties to the Government and received a grant of the Development Land in exchange. The parties are Shiu Wing and the Government.

(2) The Internal Reorganisation : by this transaction Shiu Wing transferred the Development Land to its indirect but wholly owned subsidiary, Arrowtown, in return for the Loan Note and then assigned the Loan Note down its chain of wholly-owned subsidiaries to Prepared. This made the Shares in Prepared valuable. The Internal Reorganisation is complete and self-standing on its own. The parties are Shiu Wing and its subsidiaries and nobody else.

(3) The Share Sale : by this transaction 980 'A' shares in Prepared are sold to Calm Seas, but Shiu Wing and Arrowtown remain associated companies.

While it is accepted by Arrowtown that these transactions are linked, it submitted that each of the three transactions is separate and distinct from the others and each involved parties different from the others.

The Collector

48. On the other hand, the approach of Lord Goodhart Q.C., counsel for the Collector, is that stripped of the complications added to it with a view to the avoidance of stamp duty, the deal which Shiu Wing had entered into was that :

(1) Shiu Wing would surrender the Development Land to the Government and obtain a re-grant of it for a new term at a substantial premium (the funds for which would be provided by a consortium formed by the Swire Group and the Sun Hung Kai Group);

(2) Shiu Wing would sell 98 per cent interest in the new lease to the consortium at a basic price of HKI$12,460,559,737 ("the basic price") together with a share of the profits to be made by the consortium from the development of the Development Land ("the Deferred Consideration").

Two distinct transaction

49. At this stage it is important to bear in mind that there were indeed two distinct and separate transactions, both in substance and in form. One was for the transfer of land within a group of companies. The other was for the sale of shares in a company to an outsider. The stamp duty was to be charged on the land transaction and not the share transaction.

The first issue

50. The first issue is whether any of the consideration for the Memorandum comes from a non-associated company.

The meaning of consideration for the transfer

51. Section 45(4)(a) raises three questions :

1. What was the consideration for the transfer?

2. Was it provided by an outsider directly or indirectly?

3. Was it received by an outsider, directly or indirectly?

52. For the purpose of the first issue i.e. whether any of the consideration for the Memorandum comes from a non-associated company, the third question is not of relevance.

53. Section 45(4)(a) of the Ordinance 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. Section 50(1)(a) of the Finance Act, 1938 in its unamended form was as follows :

“ Section 42 of the Finance Act, 1930 (which relieves from stamp duty any instrument the effect whereof is to convey or transfer a beneficial interest in property from one associated company to another, in this section respectively referred to as the 'transferor' and 'transferee') shall not apply to any such instrument, unless it is shown to the satisfaction of the Commissioners of Inland Revenue that the instrument was not executed in pursuance of or in connection with an arrangement whereunder (a) the consideration for the transfer or conveyance was to be provided directly or indirectly by a person other than a company which at the time of the execution of the instrument was associated with either the transferor or the transferee; ..." (emphasis added)

54. One can see that section 50(1)(a) did not have the words "or received" after the words "the consideration for the transfer or conveyance was to be provided". This was added by Section 27(3) of the Finance Act, 1967.

55. Section 50(1)(a) in its unamended form was considered by the House of Lord in Shop and Store Developments Ltd. v. Commissioners of Inland Revenue [1967] A.C. 472. Despite the amendment, the case provides the authority for the meaning of the words "consideration for the transfer". In that case, 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.

56. The majority in the House of Lords held that the consideration in section 50(1)(a) was the consideration for the transfer of the property and not the arrangement. What the clothing company received or what they got when they transferred or conveyed their properties to the property company was shares in the property company. As the consideration was provided directly by the property company and not indirectly by anyone else, section 50(1)(a) was not infringed.

57. Lord Morris of Borth-y-Gest stated that :

“ 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? At that time in respect of or consequential upon the transfer of their properties and as a result of the arrangement the clothing company would have a number of shares in the property company and a sum of money. The money would have to come to them from I.R. (i.e. the issuing house), who were not an "associated" company. I cannot think, however, that such money can be regarded as being part of the consideration for the transfer or conveyance by the clothing company.

The duty that was assessed upon the adjudicated instruments was assessed pursuant to section 55 of the Stamp Act, 1891. Section 55(1) of that Act provides that where the consideration or any part of the consideration for a conveyance on sale consists of any stock or marketable security the conveyance is to be charged with ad valorem duty in respect of the value of the stock or security. It seems to me that both in that section and in section 50 of the Finance Act, 1938, the word "consideration" denotes that which is received. What the clothing company received or what they got when they transferred or conveyed their properties to the property company was shares in the property company. The shares had a value of 6s. 9d. per share. Those facts are not changed by the circumstances that in a different and separate transaction they sold some of the shares to someone else at a price of 6s. 5d. per share. There is all the difference between what the clothing company got and what they did with what they got. The question as to who provided the consideration on the different and separate sale does not arise. The money which the clothing company received came as a result of the realization by them of a part of what they received for their properties but, in my view, no part of what they received for the transfer or conveyance was provided either directly or indirectly by any person or company other than the property company. In agreement with Pennycuick J. I recognize that the words "directly or indirectly" cast a wide net, but I also agree with him that if company A sells property to company B in consideration of fully-paid shares in company B and if company A, even pursuant to a pre-arranged plan, then sells some of the shares to C, it cannot be said that C has provided directly or indirectly the consideration for the sale of the property by company A to company B. For these reasons I feel impelled to the conclusion that the answer to the question raised in the case stated should be that the adjudicated instruments are not chargeable with the ad valorem duty assessed."

The consideration for the transfer of land

58. Applying the law to the first issue, the first question to be asked is : what was the consideration for the assignment of the Development Land to Arrowtown. In so doing, one must not confuse it with the "arrangement" that the parties had undertaken at that time. The "arrangement" involved, apart from the transfer of land, the sale of shares as well.

59. Clause 5.1 of the Share Sale Agreement expressly stated that the Assignment was for the consideration described in Part One of Schedule 2 of the Share Sale Agreement. This includes two matters :

1) The Initial Consideration of HK$12,714,856,874; and

2) 12% of the Surplus Proceeds as the Deferred Consideration for the Development Land.

Both of these considerations were provided by Arrowtown which was an associated company of Shiu Wing and not an outsider.

60. This being the express provisions for the consideration. It is important to bear in mind the legal principles concerning the allocation of considerations by the parties to a transaction. In E V Booth (Holdings) v. Buckwell (Inspector of Taxes) [1980] STC 578, 584a-d, Browne-Wilkinson J (as he then was) held that,

“ 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."

See also Spectros International v. Madden [1997] STC 114.

Consideration paid by an outsider

61. No dispute is made by the Collector on these considerations provided by Arrowtown. It is not her case that one can go behind the corporate entity of Arrowtown. What the Collector says is that an outsider, namely Calm Seas, had provided considerations for the transfer of the Development Land by other means. This can be found in two documents. First, the DC Agreement and second, the Shareholders Deed. The parties to the DC Agreement were Shiu Wing, Arrowtown, Super Charge, Prepared and Calm Seas. The parties to the Shareholders Agreement were Shiu Wing, Super Charge, Calm Seas, New Town and Swire.

The decision

62. The learned judge accepted that Calm Seas had provided consideration under the DC Agreement for the transfer of the Development Land. However he rejected the Collector's argument that outsiders namely, Calm Seas, New Town and Swire had provided consideration under the Shareholders Deed.

The basis of the decision

63. The learned judge held that Calm Seas did provide consideration by virtue of Clause 14 of the DC Agreement and also on a broader ground.

64. In relation to Clause 14 the learned judge held that 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 not repaid would adversely affected Shiu Wing's entitlement to the Deferred Consideration).

65. The broader ground is that as Calm Seas was a party to and a signatory to the DC Agreement, everything that was mentioned and agreed in the DC Agreement was binding on Calm Seas. Lord Goodhart, however, does not support this broader approach at this appeal. Hence the only issue is whether Clause 14 is a provision which has the effect of Calm Seas having provided consideration for the transfer of the Development Land.

The DC Agreement

66. Clause 14 of the DC Agreement provides that :

“ 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 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."

Relationship of Share Sale Agreement and DC Agreement

67. Clause 5.3 of the Share Sale Agreement provides that on completion of the sale and purchase of the Sale Shares, Shiu Wing shall deliver to Calm Seas, among other things, 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 of the Share Sale Agreement (i.e. the DC Agreement).

68. The parties to the DC Agreement were Shiu Wing, Arrowtown, Super Charge, Prepared and Calm Seas. The DC Agreement that was placed before the Court was signed by all five of these parties.

69. There can be no doubt that Arrowtown had to pay the Deferred Consideration to Shiu Wing for the transfer of the Development Land. Clause B in the Recital of the DC Agreement expressly states that it is a condition of the sale of the Development Land that Arrowtown entered into the DC Agreement to provide for the payment of the Deferred Consideration by Arrowtown.

Terms of the DC Agreement

70. However, the fact that the DC Agreement provides for the transfer of the Development Land, does not mean that another party to the DC Agreement i.e. Calm Seas was also providing consideration to Shiu Wing for the transfer of the Development Land. One has to examine the clauses of this agreement to see whether such an obligation is imposed.

71. Clause 1 of the DC Agreement expressly provides that

“ (Arrowtown) shall pay to (Shiu Wing) 12% of the Surplus Proceeds .... As deferred consideration for the Development Land ("Deferred Consideration"). "

72. It then goes into detail on the following matters :

1. The ascertainment of the Surplus Proceeds. The Surplus Proceeds is the difference between the proceeds of sale ("the Disposal Proceeds") after deducting the "Deductible Costs" (Clauses 2 and 3).

2. The application of the Disposal Proceeds. The Disposal Proceeds are to be applied in the following order :

(1) In reimbursement of the Deductible Costs or any loan to Arrowtown used to finance the development costs.

(2) In payment of any Interim Deferred Consideration.

(3) Any other outstanding loans as defined therein.

(4) Payment of any dividend declared payable by Arrowtown to Prepared (Clause 4).

3. Shiu Wing may be paid an Interim Deferred Consideration prior to completion if Arrowtown so wishes (Clause 5).

4. Transfer of assets by Arrowtown to its shareholders will be treated as an interim distribution and Shiu Wing shall be entitled to 12% of the value transferred and this sum is treated as a payment of interim Deferred Consideration (Clause 6).

5. Deductions for interest calculation purposes (Clause 7).

6. Deferred Consideration calculation (Clause 8).

7. Shiu Wing has the option to require immediate settlement of Deferred Consideration for unsold units (Clauses 9 and 10).

8. Resolution of disputes between Shiu Wing and Arrowtown on the value of unsold unit under the terms of Clauses 9 and 10 (Clause 11).

9. Payment of Deferred Consideration (Clause 12).

10. Shiu Wing shall refund to Arrowtown if the Interim Deferred Consideration it received exceeded the total of the Deferred Consideration it was entitled to receive from Arrowtown (Clause 13).

11. If the dividends paid by Arrowtown to Prepared or any interim distribution made by Arrowtown to Prepared exceeded the final amount of the Surplus Proceeds required by Arrowtown to distribute to Prepared, then Prepared had to reimburse the excess to Arrowtown. If Prepared had declared dividends or distributed the dividend or interim distribution received from Arrowtown to its shareholders, then Super Charge or Calm Seas have to reimburse Arrowtown up to the amount they received from Prepared (Clause 14).

12. The right of Shiu Wing to Deferred Consideration is expressly stated to be "a right in contract only against (Arrowtown). Such right shall not constitute or create any interest in land and (Shiu Wing) will disclaim and abandon any unpaid seller's lien on the Development Land or any interest therein" (Clause 15).

13. Shiu Wing can assign the benefits of the Deferred Consideration and its right to certain provisions of the Shareholders Deed to a third party provided that the assignee shall enter into a deed agreeing to observe the terms imposed on Shiu Wing under the DC Agreement and the assigned provisions of the Shareholders Deed (Clause 16).

73. There are further provisions relating to tax, cost, interest, notices and governing law and jurisdiction (Clauses 17, 18, 19, 21 and 22).

74. The parties declared that other than those disclosed in the DC Agreement, the amount or value of any other consideration in connection with the Memorandum or the Assignment is nil (Clause 20).

Calm Seas' obligation

75. It is clear from a review of these clauses, that the rights and obligations of Shiu Wing and Arrowtown in respect of the Deferred Consideration are found in Clauses 1-13. Calm Seas has no obligation towards Shiu Wing in respect of the Deferred Consideration under these clauses.

76. As for Clause 14, the obligation by Calm Seas to reimburse the excess payment by Arrowtown only arises when Prepared had declared dividends or distributed interim distribution to its two shareholders, namely Super Charge and Calm Seas. The clause does not specifically state to whom the reimbursement is to be made. Reading the clause as a whole, the most that can be said is that the reimbursement is to be made to Arrowtown. In such an event the obligation is by Calm Seas to Arrowtown and not to Shiu Wing.

77. Lord Goodhart argued that in effect the reimbursement by Calm Seas is for money which should have been distributed to Shiu Wing as Deferred Consideration. This is because Arrowtown can not keep the money but has to use it to pay Shiu Wing. Hence Clause 14 provides for the consideration for the transfer of the Development Land.

78. The short answer to this argument is that this is not what Clause 14 said. Arrowtown has an obligation to Shiu Wing to pay for the Deferred Consideration. Calm Seas owes no such obligation towards Shiu Wing. Its obligation under Clause 14 is towards Arrowtown. This cannot be turned into an obligation towards Shiu Wing simply because Arrowtown owes obligation towards Shiu Wing under other clauses, such as Clauses 1 and 15 in respect of the Deferred Consideration.

79. Clause B of the Recital of the DC Agreement expressly provides that Arrowtown is to pay for the Deferred Consideration. Clause 15 expressly provides that Shiu Wing's right to the Deferred Consideration is a right in contract only against Arrowtown. If this is the case, how can Clause 14 impose an obligation on Calm Seas towards Shiu Wing for the Deferred Consideration? If there is such an obligation, presumably Shiu Wing can enforce it, yet Shiu Wing has expressly agreed to pursue its right against Arrowtown in contract only. At the very least the DC Agreement does not say that Shiu Wing also has a right against Calm Seas in contract only.

80. This is not something that is capable of further analysis. Either Clause 14 imposes an obligation by Calm Seas towards Shiu Wing for the transfer of the Development Land and or it does not. I find that it does not.

Why was Clause 14 in the DC Agreement?

81. It was argued that if Calm Seas does not have such an obligation, then why does Clause 14 exist in the DC Agreement which provides for the payment of consideration for the transfer of land? The fact that Clause 14 is in the DC Agreement does not mean Calm Seas has assumed an obligation for the transfer of land as well. After all, it is a shareholder of Prepared together with Super Charge. If Prepared has an obligation to repay the excess to Arrowtown, then Calm Seas' obligation to repay the distribution to Arrowtown after it received the distribution arises by reason of the transfer of the shares which it had agreed to pay for $12,460,559,737. It is the consideration for the transfer of the shares. This arises because of the transfer of the shares and not because Shiu Wing would need protection for the loss of control of Arrowtown. The loss of control is the consequence of the transfer of the shares to Calm Seas.

Position of Prepared and Calm Seas

82. Lord Goodhart argued that it is illogical to say that Clause 14 is a consideration by Calm Seas for the shares. The argument is like this : under Clause 14, Prepared and Super Charge are also required to reimburse Arrowtown. They cannot do so by reason of the share transfer because Super Charge is the vendor of the shares and so it cannot provide consideration for the sale of the shares. As for Prepared, it is the company whose shares are sold, so it cannot provide consideration for the sale of its own shares. Hence it is illogical to say Calm Seas provides the consideration under Clause 14 for the sale of the shares.

83. Whatever the position may be concerning Super Charge and Prepared, clearly Calm Seas has no similar constraint in providing the consideration for the transfer of the shares. As the transferee of the Sale Shares it obviously was required to provide the consideration for the Sale Shares.

The master contract argument

84. Lord Goodhart argued that the Share Sale Agreement is the master contract which draws all the various transactions and contracts together. The obligations assumed by all parties constituted consideration as soon as they became legally binding. The order in which these obligations was discharged by performance is irrelevant. Accordingly the obligations under the Memorandum of Agreement for the assignment of the Development Land, the DC Agreement and the Shareholders Deed became binding simultaneously.

85. In my view this is not how the parties had structured the various transactions. This submission moves dangerously close to the submission relied upon by the Inland Revenue in Shop and Store on the consideration for the whole arrangement which was rejected by the House of Lords.

86. Likewise, although in this case there was a single package or bargain, it is not right to gloss over the arrangement. Plainly there were two distinct and separate transactions involving two distinct and separate considerations provided by different parties. The Collector accepts that the $12,714,856,874 and Deferred Consideration for the transfer of land were paid or to be paid by Arrowtown. By the terms of the Sale Share Agreement and DC Agreement this can hardly be challenged.

87. The Shares were to be sold for $12,460,559,737. By the completion of the sale of the Shares, the land transfer had been completed. Clause 5.3(A)(4) of the Sale Share Agreement which requires Shiu Wing to deliver to Calm Seas the DC Agreement duly executed by Arrowtown and Shiu Wing is the clearest indication that the consideration for the transfer of the Development Land was provided by Arrowtown only because the DC Agreement expressly stated in the Recital that it was a condition of the transfer of the Development Land that Arrowtown should enter the DC Agreement to provide for the payment of the Deferred Consideration and the DC Agreement "is supplemental to the Memorandum". It did not mention Calm Seas or Super Charge or Prepared. The intention must clearly be that the consideration for the transfer of the Development Land was to be provided by Arrowtown. The fact that Super Charge, Prepared and Calm Seas also signed the DC Agreement would not change the basic premises that the consideration for the Development Land had already been provided for when the parties entered into the Sale Share Agreement which provided for the sale of the Sale Shares.

88. In so far as Clause 14 protects Shiu Wing's interest in the Deferred Consideration, it does not mean that this is consideration for the Development Land. I have already dealt with this and will further adopt the same reasoning to Clause 14 when I deal with the position of the Shareholders Deed.

The Shareholders Deed

89. Under Clause 5.3 of the Share Sale Agreement, again on completion of the sale of the Sale Shares, Shiu Wing is to deliver to Calm Seas the Sharehodlers Deed duly executed by Shiu Wing and Super Charge. Upon Shiu Wing complying with this term, Calm Seas is to deliver the original of the Shareholders Deed duly executed by Calm Seas and the Guarantors.

90. The Shareholders Deed recites that Prepared and Arrowtown have been formed by agreement between the parties to facilitate the development of the Development Land; Super Charge and Calm Seas are shareholders of Prepared and Arrowtown is a wholly owned subsidiary of Prepared; the parties have agreed to enter into commitments and to regulate the exercise of their rights in relation to Prepared, Arrowtown and any subsidiaries thereof according to the Shareholders Deed.

91. The Shareholders Deed provides 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 Prepared 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.

92. The Shareholders Deed also provides, among other things, that :

1. the business of Prepared and Arrowtown should be confined to the development of the Development Land (Clause 5.1);

2. Calm Seas should be responsible for the provision of finance to Prepared and Arrowtown for the operation of their business (Clause 6.1);

3. the general nature of the business of Prepared and Arrowtown should not be changed (Clause 7.1(A));

4. no change should be made in the authorized or issued share or loan capital of the two companies (Clause 7.1(B));

5. no alterations should be made in the Memorandum or Articles of Association of the two companies (Clause 7.1(C);

6. no new interest in the two companies should be created or conferred on any person whether in the form of shares or otherwise (Clause 7.1(E)(1)); and

7. no arrangement for sharing income or profits should be entered into with any person by any of the two companies (Clause 7.1(E)(2)).

93. The Shareholders Deed also provides for the right of Super Charge and Calm Seas to transfer their shares subject to the provision of the Shareholders Deed, and also the transfer of shares by Shiu Wing, New Town or Swire respectively, and the transfer of Shiu Wing's right to the Deferred Consideration under the DC Agreement.

Shareholders Deed provides consideration for the land?

94. The "master contract" argument relied by the Collector extends to the Shareholders Deed. Lord Goodhart argued that the obligations entered into by Calm Seas, New Town and Swire under the Shareholders Deed were not allocated expressly either as consideration for the assignment of the Development Land or for the sale of the Sale Shares. It is therefore necessary to draw inferences from the background facts and the words used to ascertain if the Shareholders Deed provided consideration for the Development Land.

95. The Shareholders Deed was needed because of the continuing interests of Shiu Wing. These were, in commercial terms,

(a) the right to 12 percent of any "Surplus Proceeds", payable direct to Shiu Wing by Arrowtown ("the land interest") and

(b) a 2 percent interest in the development through the holding by Super Charge of 2 percent of the A shares in Prepared ("the share interest").

96. These interests were vulnerable from Shiu Wing's point of view because Arrowtown and Prepared were under the control of Calm Seas. The interests were also conflicting with each other, since payment of Deferred Consideration diminished the assets of Prepared.

97. If the development had made a profit, obtaining payment via Deferred Consideration (at 12 percent) would have been considerably more valuable to Shiu Wing than a 2 percent interest in Prepared.

98. The Shareholders Deed gave effect to Clause 7.2(c) of the original Heads of Agreement which provided that further documentation should inter alia contain

“ Terms for the constitution and operation of the business of BVI(2) and Landco ..... terms giving protection for [Shiu Wing] as a minority shareholder of BVI(2), and terms to ensure that [Calm Seas] (or as the case may be BVI(2) does not take or omit to take any action with the sole or main intention of preventing Landco from meeting the deferred consideration for the assignment of the Development Land. "

(BVI(2) and Landco were the names given to companies which at that stage were unidentified and whose roles were eventually played respectively by Prepared and Arrowtown.)

99. It is clear from Clause 7.2(c) of the Heads of Agreement that the land interest and the share interest were seen as separate forms of property requiring separate protection. Thus the terms giving Shiu Wing protection as a minority shareholder in Prepared were part of the package of benefits received by Shiu Wing in return for procuring the sale of shares in Prepared, while the terms ensuring that Calm Seas did not prevent Arrowtown from meeting the Deferred Consideration liability were part of the package of benefits received by Shiu Wing in return for assigning the Development Land to Arrowtown. The respective sets of terms were plainly respectively consideration for the sale of the Shares and the sale of the Land. It cannot be right to treat all of these terms as consideration exclusively for the sale of the Shares. Some terms, of course, such as the right of Shiu Wing to nominate a director of Prepared and Arrowtown, were relevant to the protection of both the share interest and the land interest and should therefore be treated as consideration for both sales.

100. This dual role of the Shareholders Deed is emphasized by Clause 16 of the DC Agreement which authorized Shiu Wing to assign the benefit of all or any part of its right to Deferred Consideration to a third party, together with its rights under some of the clauses of the Shareholders Deed (Clause 7 (except for sub-clause 7.1(B), (C), (E1) and (F8)) 11, 12 and 13). Since there was no need - or even likelihood - for Shiu Wing to procure a sale of its shares in Prepared to the assignee of the Deferred Consideration, those provisions of the Shareholders Deed were clearly regarded as an integral part of the consideration for the assignment of the Development Land.

101. Lord Goodhart analysed which clause of the Shareholders Deed refers to the land and which refers to the shares :

1) Clauses 11.1 and 11.2 provide that Shiu Wing shall have a put option to sell its right to the Deferred Consideration in the event of a change of control of Calm Seas or Prepared. This is clearly part of the land interest package, as is Clause 11.5 which deals with the situation where Shiu Wing had assigned its right to receive the Deferred Consideration. Clause 11.1 requires New Town and Swire, in the event of a proposed share transfer which would result in their giving up control of Calm Seas or Calm Seas giving up control of Prepared, either to procure that the transferee offers to buy Shiu Wing's right to Deferred Consideration or to make such an offer themselves to Shiu Wing. Under Clause 11.2, Shiu Wing shall consent to the proposed share transfer but has the option to sell the right to Deferred Consideration to the transferee or New Town and Swire or retain the right or sell to other persons.

2) By contrast, Clauses 11.3 and 11.4 give a similar option over the Shares in Prepared held by Super Charge and are clearly part of the share interest package.

3) The only right of Shiu Wing under Clause 12 is its right under Clause 12.6(c). Clause 12 deals with the restriction on the transfer of shares. Clause 12.6(c) deals with the transfer of Calm Seas shares. This may amount to a change of control which entitles Shiu Wing to exercise its option under Clause 11.

4) Clause 13 gives Calm Seas the right of first refusal if Shiu Wing wishes to sell its right to the Deferred Consideration. Lord Goodhart argued this clause applies exclusively to the land interest, though he accepts that its effect is in substance to give Calm Seas a right of first refusal over the Deferred Consideration which, as a benefit to Calm Seas rather than Shiu Wing, is not consideration given to Shiu Wing.

5) Clause 7 contains provisions which are mainly relevant to both the land interest and the share interest, but Clause 7.2(c) is plainly part of the land interest package rather than the share interest package. Clause 7.2(c) deals with the request for consent from Shiu Wing and Super Charge for Prepared or Arrowtown to make a dividend or distribution. Unless there is a guarantee to ensure there is repayment of excessive distribution over the Surplus Proceeds as provided for in the Sale Share Agreement, Shiu Wing and Prepared shall be deemed to be acting reasonably in withholding consent.

6) Clause 9.2 contains, among other provisions, an undertaking by each of New Town, Swire and Calm Seas that "it shall not take or omit to take any action with the sole or main intention of prejudicing .... the right of [Shiu Wing] to receive the Deferred Consideration in accordance with the provisions of the [Share Sale Agreement]." This relates to land.

7) Clause 15.2 contains provisions which correspond (though not in an identical form) to those in Clause 16 of the DC Agreement is also related to land. Clause 15.2 deals with the assignment by Shiu Wing of parts of Clause 7, Clauses 11, 12 and 13 to a person to which Shiu Wing had assigned the right to receive a majority of the Deferred Consideration. This person is required to enter a deed agreeing to observe the terms of such clauses imposed on Shiu Wing.

Protection of consideration

102. In considering these arguments, it is again important to bear in mind the fundamental point that there were two distinct and separate transactions. The Shareholders Deed is linked to the Share Sale Agreement and the consideration for the Shareholders Deed is the sale of the Sale Shares to Calm Seas. This applies to Clause 14 of the DC Agreement as well.

103. The Shareholders Deed is required to regulate the positions of the parties arising from the sale of the Sale Shares. Specifically it protects Shiu Wing's investment in Arrowtown. While there are terms that protect Shiu Wing's interest in the Deferred Consideration it does not mean that they are considerations for the transfer of the Development Land. Transfer of the Development Land and the consideration for it had already been provided for when the parties entered into the Shareholders Agreement. I think the succinct reason of Pennycuick J., sitting as the first instance judge in Shop and Store really sums up the situation :

“ The condition of non-exemption is not that, under the arrangement, the consideration received by the transferor under the arrangement - i.e., the arrangement as a whole - should be provided by an outside party, but that, under the arrangement, the consideration received for the transfer should have been provided by an outside party."

104. By adopting this approach, the Court is not ignoring the reality. Reality is judged first by how the parties had structured and carried out the two transactions in this case. The share transaction and the land transaction are not sham transactions. One cannot just say that because Shiu Wing received protection for the Deferred Consideration, this must necessarily be consideration for the transfer of the Development Land. This protection is understandable because there was another shareholder in Arrowtown. Arrowtown is the company which holds the Development Land. The promises given by Calm Seas, even though they may relate to the protection of Shiu Wing's interest in the Development Land, arises because of the sale of the Shares and could only be for the sale of the Shares.

105. I agreed with Mr. Goldberg's submission that if the transfer of the land had taken place, say, six months earlier than the sale of shares, the terms in Clause 14 of the DC Agreement and the Shareholders Deed cannot be consideration for the transfer of the land. They only protect the consideration. Even if the two transactions had taken place at the same time, so long as there were two distinct transactions, the position remains the same.

106. In Curzon Offices Limited v. Inland Revenue Commissioners [1944] 1 All ER 163 (Macnaghten J.), [1994] 11 All ER 606 (Court of Appeal), 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.

107. It is clear that Curzon Offices is quite different from the present one. Under the arrangement in that case, the sale between the two associated companies was for a cash consideration secured in part by a mortgage on the property sold and in part by a bank loan guaranteed by the outside party, so that the outside party did indirectly pay the purchase price. In this case there was a separate consideration for the transfer of the Development Land.

108. I do not accept that the Shareholders Deed provides consideration for the transfer of the Development Land.

Unilateral contract

109. Lord Goodhart had originally relied on an argument based on a unilateral contract discussed in Carlill v. Carbolic Smoke Ball Co. [1893] 1 Q.B. 256. This argument was not pursued.

Answer to the first issue

110. For the first issue, I find that there was no consideration from an outsider for the transfer of the Development Land. Hence the answer to the first issue is "No".

The second issue

111. The second issue is whether there was any arrangement for any of the consideration to be parted with in a relevant way within the meaning of section 45(5). Section 27(3) of the Finance Act, 1967 which was introduced after Shop and Store is as follows :

“ The said section 42 shall not apply to any instrument ... unless it is also shown to the satisfaction of the Commissioners that the instrument was not executed in pursuance of or in connection with an arrangement whereunder (a) the consideration, or any part of the consideration, for the conveyance or transfer was to be provided or received, directly or indirectly, by a person other than a body corporate which at the time of the execution of the instrument was associated within the meaning of the said section 42 with either the transferor or the transferee ..., or (b) ..., or (c) the transferor and the transferee were to cease to be associated within the meaning of the said section 42 ...; and, without prejudice to the generality of paragraph (a) above, an arrangement shall be treated as within that paragraph if it is one whereunder 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."

112. The relevant change in the new provisions are the inclusion of the words "or received" after "to be provided". The first part of section 27(3) becomes section 45(4)(a) of the Ordinance. The concluding part of section 27(3) became section 45(5) of the Ordinance.

The decision

113. The learned judge was also against Arrowtown on the second issue.

The Collector's case

114. The Collector's case is that section 45(5) was engaged because there was a "parting with" of the consideration i.e. the Loan Note "in consequence of the carrying out of a transaction" involving a payment by Calm Seas, an outsider.

Arrowtown's case

115. The gist of Arrowtown's case on section 45(5) is that firstly, this section does not apply to transfer of consideration within a group. It is expressed to be "without prejudice to the generality of" section 45(4)(a) and so is narrower than, and operates in a way which is ancillary to, section 45(4)(a). If section 45(5) were wider than section 45(4)(a), or had vitality independently of section 45(4)(a), it could not prejudice section 45(4)(a) and there would not be any need to say that it does not do so. Section 45(5) is a subsidiary provision which operates to explain section 45(4)(a) but not to create a charge to tax where section 45(4)(a) does not create one. Its function is solely to explain the circumstances in which section 45(4)(a) applies and ensures only that, where consideration has been provided or received (in the way described in section 45(5) itself) by an outsider, section 45(4)(a) applies to impose a charge to stamp duties. It does not impose a charge where, as in this case, consideration is transferred within a group so that an outsider does not get it and, accordingly, nothing in section 45(5) can deny relief in this case.

Ambit of section 45(5)

116. I agree with the analysis of Arrowtown. Amendment to the statute was introduced after Shop and Store to reverse the decision. The additional word "received" is not sufficient to achieve this purpose because in Shop and Store the consideration for the transfer of the property was received by the clothing company directly and so it could not be received indirectly by someone else. However, section 45(5) would clearly cover the situation because by selling the shares to an outsider, the clothing company (the transferor) "was to part with any of the (consideration), by or in consequence of the carrying out of a transaction or transactions involving ... a payment ... by an (outsider)".

117. In my view Shop and Store serves as the best illustration about the ambit of section 45(5). It is dependent on section 45(4)(a) and is not intended to be a separate charging section. It explains section 45(4)(a). The 'parting with' provision is clearly intended to catch a parting with of the consideration to an outsider. In the present case as the Loan Note was parted to a member of the group, relief from stamp duty is still available to Arrowtown.

118. Lord Goodhart submitted that while section 45(5) may cover the Shop and Store situation, it does not follow that is the only situation it covers. Some very long winded words are used after "parting with" and this means that this will include parting with the consideration to an insider but in consequence of carrying out transactions involving outsiders. The section is intended to cover the present situation where the consideration remains with an associated company (i.e. Prepared) but not in a de facto sense.

119. I disagree. Transfer within associated companies is treated as a matter of internal administration. The mischief aimed at by section 45(4)(a) is outside money being brought in as part of the arrangement in which associated companies exchanged among themselves property for shares or money. In such a situation the arrangement ceased to be a matter of internal administration and hence there is no adequate reason for exemption from stamp duty (see Lord Reid at page 489 in Shop and Store).

120. In other words the concern was with outside money being provided for the transfer. Likewise with the additional words "or received", the concern was with the consideration being received by an outsider. If this is the focus of the legislation then parting with the consideration to an associated company cannot be the mischief that the section 45(5) wishes to catch it. Hence it remains the case that section 45(5) is aimed at the Shop and Store situation of parting with the consideration to an outsider.

By or in consequence of the carrying out of a transaction

121. Even if there is no restriction on parting with the consideration to an outsider, Mr. Goldberg further argued that section 45(5) was still not applicable.

122. The application of the section involves four matters :

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

(2) "Under" the arrangement, the transferor or its associated company was to "part with" the consideration or the relevant part thereof.

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

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

123. The learned judge found that there was an arrangement involving the land exchange, the transfer of the Development Land, the respective assignments of the Loan Note, and the sale of the Sale Shares. The arrangement was contained in or evidenced by the Heads of Agreement as replaced by the Share Sale Agreement. The Loan Note was parted by Shiu Wing (the transferor) to Eastview under the arrangement. 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 Share Sale Agreement. This involved the assignment of the Loan Note by Shiu Wing to Eastview. The parting with of the Loan Note was to be done in consequence of the carrying out of the Share Sale Agreement. The carrying out of the Share Sale Agreement involved the payment of money by Calm Seas, an outsider, hence the four conditions were satisfied.

124. The challenge by Mr. Goldberg is in respect of the third condition. He submitted that Shiu Wing did not part with the Loan Note "by or in consequence of a transaction" involving an outsider. He submitted that the Share Sale Agreement was not a transaction. The word "transaction" is narrower than the word "arrangement" and must at least connote the happening, as distinct from just the planning, of something. Further, even if the Share Sale Agreement was the transaction, Shiu Wing did not part with the Loan Note by the Share Sale Agreement, and it did not part with it in consequence of the carrying out of the Share Sale Agreement, but before it was carried out. The internal reorganization, which led to Shiu Wing parting with the Loan Note, was a condition precedent to the share sale (see Clause 5.2 of the Share Sale Agreement) and so cannot have been in consequence of the carrying out of the agreement. The word "consequence" has both logical and temporal connotations, neither of whom is satisfied in this case.

125. Clause 2.2 required Shiu Wing to carry out the reorganization prior to the premium payment date for the land exchange. The reorganisation will include the assignment of the Loan. By Clause 7.1(F), Shiu Wing undertakes that it "shall procure that the Reorganisation is effected".

126. Although these two clauses appeared in the Share Sale Agreement, I do not consider that the parting with of the Loan Note (i.e. the consideration) was by or consequence of the carrying out of the Share Sale Agreement. There must be a distinction between the "arrangement" and the "transaction" in section 45(5). The Share Sale Agreement cannot be both the "arrangement" and the "transaction" at the same time. The section envisages a transaction under the arrangement and it must be "by and in consequence" of that transaction that the Loan Note was parted with. Clause 5.1(B) of the Share Sale Agreement clearly requires the reorganisation to be effected as a condition precedent to the completion of the sale of the Sale Shares. The consideration had already been parted when the Share Sale Agreement was implemented. Hence in my view section 45(5) was not engaged.

Payment of premium

127. Lord Goodhart also put forward the argument that even if it is necessary to show that the consideration was parted with in consequence of an earlier transaction that condition was satisfied. Under Clause 4.1(B) of the Share Sale Agreement, Calm Seas was required to pay the premium for the grant of the new lease of the development land. The assignment of the Development Land could not have happened if this payment had not been made, so the assignment of the Loan Note was consequential on the payment of the premium by Calm Seas.

128. I agree with the learned judge that this is an artificial and unsatisfactory basis to bring section 45(5) into force. The payment of the premium by Calm Seas was part of a transaction rather than constituting a transaction by itself.

Answer to the second issue

129. To conclude, section 45(5) was not engaged because Shiu Wing did not part with the consideration to an outsider. The answer to the second issue is "No".

The third issue

130. The third issue is whether the Ramsay doctrine applies to deny relief under section 45 if it is otherwise available.

131. Before I examine the Ramsay principle it is necessary to look at the context in which this principle is said to be applicable. This principle was first raised by the Collector in the Case Stated. The Collector's case is that the claim for relief of stamp duty on the Assignment is denied by section 45(5A) of the Ordinance in that Shiu Wing and Arrowtown who were associated to each other at the time of transfer of the Development Land ceased to be so associated after Calm Seas acquired the Sale Shares from Super Charge. The specific steps taken by Prepared in restructuring its share capital, creation of the non-voting 'B' shares which are in reality of no meaningful commercial value, the allotment of the 100,000 'B' shares to Super Charge, in addition to the 900 'A' shares as consideration for the assignment of the Loan Note by Super Charge to it are all inserted steps that have no purpose other than the avoidance of the stamp duty liability in respect of the transfer of the Development Land. Applying the Ramsay principle the inserted steps of creating the 'B' shares in Prepared and the allotment by it to Super Charge should be ignored for stamp duty purposes. Accordingly, after the sale of the shares to Calm Seas, Shiu Wing has become a minority shareholder holding only 2 per cent of the issued share capital in Prepared, with the 'B' shares being ignored.

132. This argument is no longer pursued by Lord Goodhart. In the light of the decision of Canada Safeway Ltd. v. Inland Revenue Commissioners [1973] Ch 374 on the meaning of issued share capital, the stand previously taken by the Collector is clearly not sustainable.

133. In the hearing before the learned judge, the Collector relied on Ramsay to argue that the term "consideration" in section 45(4)(a) bears a commercial meaning rather than a technical meaning. This contention is maintained in this appeal.

Ramsay

134. In WT Ramsay Ltd. v IRC [1982] AC 300 the taxpayer had, upon the sale of farm land, realized a chargeable gain. For the sole purpose of avoiding the capital gains tax which would have been payable, the taxpayer entered into a ready-made scheme (bought from a company specializing in such schemes) to create an artificial capital loss. The scheme itself was self-cancelling, and looked at as a whole, there was neither gain nor loss. The House of Lords concluded that, in these circumstances, the scheme, for the purposes of the relevant taxing statute, had to be disregarded. Lord Wilberforce at p.326E held that,

“ The capital gains tax was created to operate in a real world, not that of make-belief ... it is a tax on gains ... it is not a tax on arithmetical differences. To say that a loss (or gain) which appears to arise at one stage in an indivisible process, and which is intended to be and is cancelled out by a later stage, so that at the end of what was bought as, and planned as, a single continuous operation, there is not such a loss (or gain) as the legislation is dealing with, is in my opinion well and indeed essentially within the judicial function." (emphasis added)

Furniss v. Dawson

135. The House of Lords in Furniss v Dawson [1984] AC 474 explained that in order to apply the Ramsay principle, there must be the following :

“ 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." per Lord Brightman at page 527."

Shiu Wing Ltd. v. Commissioner of Estate Duty

136. The Court of Final Appeal approved of the Ramsay principle in Shiu Wing Ltd. v Commissioner of Estate Duty [2000] 3 HKLRD 76. Litton PJ stated that :

“ It is necessary at the outset to emphasise, as Lord Steyn said in IRC v McGuckian [1997] STC 908 at p.916e, that the Ramsay principle is not invented on a juristic basis independent of statute : "That would have been indefensible since a court has no power to amend a tax statute. The principle was developed as a matter of statutory construction".

137. After referring to the speech of Lord Wilberforce, he further stated that :

“ As can be seen from the passage above, Lord Wilberforce reached his conclusion (that the scheme was artificial and had to be disregarded) as a matter of construction of the relevant taxing statute."

Macniven v. Westmoreland Investments Limited

138. In the recent House of Lords' decision in Macniven v Westmoreland Investments Limited [2001] 2 WLR 377, Lord Hoffmann explained the Ramsay principle and the cases decided after Ramsay. In respect of Ramsay, Lord Hoffmann stated that :

“ 32 ... The contrast being made throughout Lord Wilberforce's speech is between juristic or arithmetical realities on the one hand and commercial realities on the other. He is construing the words "disposal" and "loss" to refer to commercial concepts which are not necessarily confined by the categories of juristic analysis. In the Ramsay case [1982] AC 300, a director, or an accountant concerned to present a true and fair view of the taxpayer's dealings, would not have said that the company had entered into a transaction giving rise to a loss which happened to have been offset by a corresponding gain. There had never been any commercial possibility that the transactions would not have cancelled each other out. Therefore, notwithstanding the juristic independence of each of the stages of the circular transaction, the commercial view would have been to lump them all together, as the parties themselves intended, and describe them as a composite transaction which had no financial consequences. The innovation in the Ramsay case was to give the statutory concepts of "disposal" and "loss" a commercial meaning. The new principle of construction was a recognition that the statutory language was intended to refer to commercial concepts, so that in the case of a concept such as a "disposal", the court was required to take a view of the facts which transcended the juristic individuality of the various parts of a preplanned series of transactions." (emphasis added)

“ 35 My Lords, it seems to me that what Lord Wilberforce was doing in the Ramsay case [1982] AC 300 was no more (but certainly no less) than to treat the statutory words "loss" and "disposal" as referring to commercial concepts to which a juristic analysis of the transaction, treating each step as autonomous and independent, might not be determinative. What was fresh and new about Ramsay was the realization that such an approach need not be confined to well recognized accounting concepts such as profit and loss but could be the appropriate construction of other taxation concepts as well. " (emphasis added)

“ 41 Thus in saying that the transactions in the Ramsay case were not sham transactions, one is accepting the juristic categorization 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 categorization 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."

139. In respect of Lord Brightman's decision in Furniss v Dawson, Lord Hoffmann stated that :

“ 48 My Lord, this statement is a careful and accurate summary of the effect which the Ramsay construction of a statutory concept has upon the way the courts will decide whether a transaction falls within that concept or not. 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. When Lord Brightman said that the inserted steps are to be "disregarded for fiscal purposes", I think that he meant that they should be disregarded for the purpose of applying the relevant fiscal concept."

“ 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 Burmab 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, Burmab 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." (emphasis added)

140. On the limitations of the Ramsay approach :

“ 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 I(I) to the Finance Act 1999. Although slightly expanded by a definition in paragraph I(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. If the "disregarded" steps in Furniss v Dawson [1984] AC 474 had involved the use of documents of a legal description which attracted stamp duty, duty would have been payable."

“ 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."

141. Lord Hoffmann's decision was expressly agreed to by the other Law Lords.

The application of the Ramsay principle

142. One can readily see from Lord Hoffmann's speech that the fundamental approach of the Ramsay principle is based on the construction of a statute. In construing the statute the Court has to identify the concept which is directed by that statute. In the context of tax legislation the concept may be a commercial one or that it may be a strictly legal concept. If the statute refers to a commercial concept, then the steps which have no commercial purpose but which have been artificially inserted for tax purpose will be disregarded. To disregard some intermediate steps is merely a result of statutory interpretation. On the other hand, if the statutory language refers to a legal concept and the step or transaction falls within the legal description, it makes no difference that it has no business purpose. Even if the statute refers to a commercial or business concept one cannot disregard a transaction which comes within the statutory language, simply because it was entered into solely for tax reasons.

Consideration : a commercial concept?

143. Relying on Macniven, Lord Goodhart submitted that it is necessary to consider whether the concept of consideration in section 45(4)(a) refers to a commercial concept or a legal or purely technical concept. He submits that it bears a commercial meaning. The argument is as follows :

(1) In the technical sense, the basic consideration for the Development Land was the Loan Note. In the commercial sense that was not the consideration because the note was immediately recycled back to Prepared. The real money came to Shiu Wing from the price paid for the shares in Prepared. In real terms, at the start of the arrangement Shiu Wing had a valuable piece of land; at the end of the arrangement it no longer had the land (apart from a very small indirect interest through its shareholding in Prepared) but it had a large sum of money and the possibility of further money through the DC Agreement.

(2) On the face of it, section 45(4)(a) uses "consideration" in the sense of consideration for the assignment under the arrangement as a whole i.e. consideration in a commercial rather than a technical sense. It is also difficult to see how, in the technical sense, anyone can "indirectly" provide consideration, since it is only the promise of a party to the contract which can amount to consideration. Someone else can of course provide funds to enable a party to fulfill its promise to pay, but that is in the technical sense providing money, not consideration. Therefore, when section 45(4)(a) refers to "consideration" being "provided ... indirectly", it must be referring to consideration in its commercial sense. At the lowest, "consideration" must be capable in the context of having that meaning.

(3) If there was no previous authority on the meaning of section 45(4)(a) of the Ordinance, it would be clear that "consideration" in that subsection should be read in its real or commercial sense. However, in Shop and Store, the House of Lords held that "consideration" in the similar provisions of section 50 of the Finance Act, 1938 had a technical meaning. This decision was reached by a 3 to 2 majority, Lords Reid and Guest dissenting on the ground that "consideration" meant what the transferor got in real terms.

(4) Shop and Store (which was decided many years before Ramsay) is inconsistent with Ramsay as explained in Macniven, and that the views of the minority in Shop and Store represent the present state of the law. Despite the high persuasive authority of Shop and Store in the Hong Kong courts, it is no longer good law in the UK and should not be followed in Hong Kong. It follows that the consortium, or Calm Seas on its own, should be treated as having provided consideration for the assignment of the Development Land without having to refer to the terms of the DC Agreement or the Shareholders Deed.

What did Shop and Store say?

144. In order to deal with this argument, it is necessary to revisit Shop and Store to see how the Law Lords dealt with the concept of consideration. Lord Reid at page 489 stated that :

“ Admittedly "consideration" in this context does not have its technical meaning in the law of contract. Under this section consideration is to include anything provided directly by persons other than the transferee. But something directly provided by a person other than the transferee is something which does not move from the transferee, and which would therefore not be consideration in the technical sense. The meaning of the word "consideration" in this context must therefore be determined from the context, and the general scheme of the section."

145. Lord Guest at page 501 stated that :

“ The "consideration" is not confined to its strict legal meaning in the law of contract. It means the quid pro quo received by the transferor under the arrangement; not the consideration moving from the transferee, but the consideration moving to the transferor. In these circumstances what must be looked at is what was the consideration under the arrangement as a whole at the end of the day. So viewed I have no hesitation in holding that the consideration for the transfer or conveyance under the arrangement was not limited to the shares in the appellants' company. Under the arrangement a substantial benefit was to be provided not by the appellants but by the issuing house. As Danckwerts L.J. put it : "Indirectly, if not directly, the issuing house were providing an essential part of the consideration for the transfer of" properties of the appellants."

146. Lord Reid and Lord Guest were the dissenting minority. Lord Wilberforce on the other hand, after referring to the argument of the Inland Revenue that the equivalent of section 45(4)(a) was not concerned merely with the consideration for the transfer but with the consideration for the transfer under the arrangement which was to be provided directly or indirectly by a person other than an associated company, stated that :

“ But these do nothing to assist the Revenue. It is said that they show at least that "consideration" must be given a wider meaning than that which it bears in the ordinary law of contract and that, therefore, one may look outside the contractual document. Perhaps this is true in a sense, but only in the sense that the ultimate source of the consideration may be sought in what has been arranged. The meaning of "consideration" remains the same. Consideration payable by, or moving from, one party to a contract to another, may quite well be provided by an outside party and still be, as between the contracting parties, the consideration for the contract. The outside party may give or lend money to the contracting party, so as to enable him to pay for what he has bought, and effect can be given to the words "directly" or "indirectly" by supposing that the provider is, in the one case, not an associated company or, in the other case, an associated company which in turn gets the money from an outsider."

147. Lord Hodson at page 496 held that :

“ The transferee gave to the transferor in exchange for the property renounceable allotment letters for 2,920,000 new shares of the transferee. Did the transferee company give anything else? In my opinion, it did not do so. True, it was part of the arrangement that the transferor should sell 1,200,000 of these shares to Investment Registry, who acted as underwriters, at the price of ￡385,000. The shares were afterwards passed on to the public. However extended the meaning one gives to the word "consideration" I cannot see that it was other than the allotment letters which were provided by and could only be granted by the property company."

148. I have already referred to the judgment of Lord Morris in the earlier part of the judgment.

149. In my view, the word "consideration" in section 45(4)(a) clearly refers to a legal concept. It is a lawyer's term. Under section 45 the word "consideration" is used in the context of a conveyance of an interest from one party to another. Clearly in such a case, one should construe "consideration" as referring to a legal concept and not a commercial concept which may not have fixed boundaries and which may vary from contract to contract. To use the often repeated rule : the words of a taxing statute must never be stretched against a taxpayer.

150. I do not see how the majority decision in Shop and Store can be affected by the Ramsay principle as explained in Macniven. I do not agree with the minority decision or Lord Goodhart's submission that the consideration in section 45(4)(a) is in respect of the arrangement as a whole. The words are clear : one is concerned with the consideration for the conveyance or transfer under the arrangement. The consideration cannot be for the arrangement.

Answer to the third issue

151. Accordingly the answer to the third issue is again "No".

Relief from stamp duty

152. As I have decided that the prohibitions in sections 45(4)(a) and (5) were not engaged, there should be relief from stamp duty and this is sufficient to dispose of the appeal.

The new submissions

153. I will now deal with the submissions raised by Mr. Goldberg at the late stage of the appeal.

Relevance of other consideration

154. The first matter is whether, if consideration was indeed provided by an outsider for the transfer of the Development Land by Clause 14 of the DC Agreement and the Shareholders Deed, this was relevant for the purpose of section 45(4)(a). If it was not relevant, then the anti-avoidance provision in section 45(4)(a) was not engaged and no stamp duty was chargeable because the transfer of land was a intra-group transfer.

155. Section 29B(1) of the Ordinance provides that the purchaser and vendor under an unwritten sale agreement or an agreement for sale shall execute an agreement for sale containing the matters specified in subsection (5). The matters specified in subsection (5) include :

“ (i) a statement as to whether or not there is an agreed consideration for the conveyance on sale that is to, or may, take place pursuant to the agreement for sale and, if so, the amount or value of the consideration;

(j) the amount or value of any other consideration which each person executing the document knows has been paid or given, or has been agreed to be paid or given, to any person for or in connection with the agreement for sale or any conveyance on sale pursuant to that agreement (excluding legal expenses), together with the name, address, and the identification number or business registration number of each person receiving or to receive such consideration, and a description of the benefit to which the consideration relates; "

156. Section 29C(8) provides that :

“ (8) For the purposes of this Ordinance, the consideration for an agreement for sale shall be deemed to be the aggregate of the amounts and values referred to in section 29B(5)(i) and (j). " (emphasis added)

157. In the present case the Collector held that the Memorandum of Agreement and the DC Agreement constituted the agreement for sale of the Development Land. The consideration of the agreement for sale should be, for the purposes of Section 29C(8) of the Ordinance, the aggregate of the Initial Consideration of HK$12,714,856,874 (as stated in the Memorandum of Agreement and Clause 5.3 of the Share Sale Agreement) and the Deferred Consideration (as stated in the DC Agreement). However, as the amount of the Deferred Consideration was not ascertainable as at the date of the agreement, the Memorandum of Agreement was chargeable with stamp duty by reference to the Initial Consideration of HK$12,714,856,874. (See Para. 15.3 of the Case Stated)

158. In my view certain consequence will follow if the consideration for the agreement for sale was stated to be $12,714,856,874. This amount was ascertained by reference to Section 29B(5)(i) and (j). By reason of Section 29C(8) the aggregate of the amounts and values referred to in Section 29B(5)(i) and (j) will be the consideration for an agreement for sale for the purposes of the Ordinance. If it is the consideration for the purpose of the Ordinance, then clearly this will also be the consideration under Section 45(4)(a) as well. It must be towards this consideration and not any other consideration that one has to see whether it is provided by an outsider. I think this is a natural reading of the words in section 29C(8) and section 45(4)(a). The meaning of consideration should be the same for the purpose of the stamp duty and exemption from stamp duty. If any authority is needed, Lord Wilberforce in Shop and Store had stated that :

“ Secondly, the argument for reading "consideration for the transfer" in a normal contractual sense becomes all the stronger when it is recalled that it is consideration for the transfer which (under this very terminology) forms the basis for the stamp duty charge (see Stamp Act, 1891, section 1, section 55 Schedule, sub tit.: "Conveyance or transfer on sale"). Apart from the terminological argument for reading the two expressions in the same way, not conclusive but surely strong, it seems strange to rest the test for exemption from stamp duty upon consideration in one sense and the charge upon consideration in another sense, to say in fact that the consideration for the purpose of section 50(1)(a) was 1,720,000 shares (valued at 6s. 9d. each) plus cash equal to 6s. 5d. for 1,200,000 shares, whereas, for the purposes of stamping, the consideration is 2,920,000 shares at 6s. 9d."

It is not an answer to say that the $12,714,856,874 is merely the amount of the consideration because this amount is in fact regarded as the consideration for the purpose of the Ordinance.

159. The appropriateness of this construction is even stronger when the facts of this case are considered. Although the Collector had accepted that the $12,714,856,874 was not provided by an outsider, yet there is this odd situation of regarding Clause 14 of the DC Agreement and the Shareholders Deed to be consideration provided by an outsider, when there was no value being accorded to these documents for stamp duty and when the Shareholders Deed was not even regarded as an instrument which constituted the agreement for the transfer of the Development Land.

160. The case of Curzon Offices will not assist the Collector at all because in that case the Inland Revenue Commissioner's contention was that the outsider had to provide indirectly that part of the price which was paid in cash by reason of its guarantee of the repayment of a loan, out of which the cash portion of the purchase price was paid. The decision of Macnaghten J. was on the basis that the outsider had to provide under the arrangement the whole of the consideration for the transfer of the property. It indirectly provided the money required to pay off the mortgages.

161. In this case by no means of imagination can one say that an outsider had provided the consideration of $12,714,856,874 or the Deferred Consideration indirectly by Clause 14 of the DC Agreement or the Shareholders. This certainly was not the case put forward by the Collector.

162. Accordingly I will further hold that Clause 14 of the DC Agreement and Shareholders Deed are not relevant for the purpose of the consideration under section 45(4)(a). This means the relief is not excluded by section 45(4)(a).

True meaning of consideration

163. The second matter advanced by Mr. Goldberg is that according to Shop and Store, the consideration for the transfer can only move from the transferee to the transferor. Applying this principle to the present case, since the consideration relied upon by the Commissioner to exclude the relief did not come from Arrowtown who was the transferee of the Development Land, but from an outsider, such consideration cannot be the consideration for the transfer of the Development Land.

164. This is not a matter that I intend to deal with in detail because I do not think this has been fully argued. Clearly under contract law there is this long established rule that consideration must move from the promisee. While Lord Reid and Lord Guest had used expressions of "consideration moving from the transferee", their concern was on what the transferor received for the whole arrangement. What the majority said about the clothing company receiving the shares from the property company for the transfer of the property must also be considered in the context of the case. Their concern was focused on the consideration for the transfer of the properties and not the arrangement as a whole.

165. The approach now relied on by Arrowtown is overly restrictive. It will render section 45(4)(a) totally ineffective. I do not agree with this approach.

Conclusion

166. I shall allow the appeal and set aside the determination of the Collector on the payment of stamp duty by Arrowtown.

Hon. Ma J.A. :

The issues

167. The present appeal is about the liability of the Appellant, Arrowtown Assets Limited ("Arrowtown"), to pay stamp duty on an instrument headed "Memorandum of Agreement for Sale and Purchase" dated 22 April 1997 ("the Memorandum") under the Stamp Duty Ordinance (Cap.117) ("the Ordinance").

168. The Respondent to this appeal, the Collector of Stamp Revenue ("the Collector") took the view that it was so liable and assessed Arrowtown's liability on the Memorandum at $349,658,565. Arrowtown appealed and required the Collector to state a case to the District Court under section 14 of the Ordinance. The appeal was heard by HH Judge Andrew Cheung who upheld the Collector's assessment. Arrowtown now appeals.

169. The three issues that were before Judge Cheung have already been set out by Cheung JA in paragraph 45 above. These remained alive on appeal. Additionally, some points not argued before the learned judge, were made by Arrowtown before us. The issues before this court, argued by Mr David Goldberg Q.C. (for Arrowtown) and Lord Goodhart Q.C. (for the Collector), can thus be identified as follows:-

(1) For the purposes of section 45(4)(a) of the Ordinance, was any part of the consideration for the transfer of the Development Land provided by a person who was not associated with either the transferor or transferee of the Land (within the meaning of section 45)? (Issue 1: Application of section 45(4)(a))

(2) What is the effect of section 45(5) on the relevant arrangement or transactions in the present case? (Issue 2: Application of Section 45(5))

(3) Does the principle in WT Ramsay Ltd v Inland Revenue Commissioners [1982] AC 300 apply in the present case? (Issue 3: Ramsay)

(4) Two further arguments on consideration. (Issue 4: Other points)

170. As will become clear, Arrowtown will succeed in this appeal if each of the 1st to 3rd Issues is resolved in its favour. If, however, either Issue 1 or perhaps Issue 3 is not resolved in its favour, then it must succeed in either of the arguments raised in the 4th issue in order to succeed in this appeal, provided of course Issue 2 is resolved in its favour.

171. My Lord Cheung JA has comprehensibly set out the relevant facts and documents in his judgment. I gratefully adopt his review and would only draw attention to certain aspects to put into context the Issues in this case. I will adopt the same abbreviations and expressions used by Cheung JA where appropriate.

The relevant transactions

172. As Cheung JA has pointed out, by the end of 1996, Shiu Wing agreed with the Government to surrender a piece of land in Junk Bay (the properties) and received in exchange the regrant of the Development Land. The Development Land was to be used for non-industrial purposes.

173. Shiu Wing then entered into a series of transactions with potential developers of the Development Land, these developers being a venture comprising the Sun Hung Kai group and the Swire group. These transactions took the form of various written agreements.

174. Shorn of the details to which I will have to return, the transactions entered into between Shiu Wing and the developers were basically intended to achieve the following objectives:-

(1) Shiu Wing would transfer the Development Land to a company that was to be set up for an agreed consideration. This transferee company would constitute an associated company for the purposes of section 45 of the Ordinance.

(2) The developers, through a vehicle which represented the interests of the two groups, would acquire from Shiu Wing for a monetary consideration the controlling shareholding of either the company to which the Development Land would be transferred or of a company that would control that transferee company.

(3) Shiu Wing, however, after the transfer of the Development Land would retain some effective shareholding in the transferee company so that Shiu Wing and this company would continue to be associated within the meaning of the Ordinance.

(4) The Development Land would be redeveloped and Shiu Wing would be entitled to a share of the profits derived from the development. This share was to constitute a part of the consideration for the transfer of the land.

175. These objectives were to be achieved by a mechanism involving three aspects: a land transfer, a share transfer and an internal corporate reorganisation. In the background was of course the land exchange with the Government.

176. It will be seen that, commercially, both before and after the transactions were entered into, there were, to put it crudely, two "camps": the Shiu Wing camp and the developers' camp.

177. Cheung JA has already identified the relevant written agreements with which this appeal is concerned. I need only highlight certain aspects of them.

178. The Heads of Agreement dated 3 January 1997, later superseded, was made by Shiu Wing, Calm Seas (the vehicle representing the interests of the Sun Hung Kai and Swire groups), New Town (being a Sung Hung Kai controlled company) and Swire.

179. The Heads of Agreement can be noted for the following features:-

(1) The terms of this Agreement made clear the objectives set out in paragraph 174 above.

(2) The Development Land was to be assigned by Shiu Wing to a BVI company to be incorporated by it, once the land exchange with the Government took place, on the draft terms set out in Part 1 of Schedule 2: clause 5.1. This BVI company was referred to as "BVI(2)" or "Landco" in the Agreement, not having as yet been incorporated at that stage.

(3) Landco, the transferee company, was to be incorporated by Shiu Wing together with another BVI company so as to facilitate the sale of 98% of the shareholding of Landco to Calm Seas. These two BVI companies were referred to as "BVI(1)" and "BVI(2)" in the Agreement. See: Recital (I) and clause 2.

(4) Shiu Wing would procure and effect the sale of 98% of the shares in Landco (or BVI(2)) to Calm Seas for $12,460,559,737:- Recital (I) and clauses 3,4 and 5.

(5) The sale of the shares in Landco to Calm Seas was conditional on the assignment of the Development Land by Shiu Wing to Landco:- clause 5.1. In other words, the share sale would not go ahead unless the Development Land was transferred.

(6) After the completion of the share sale, Calm Seas would cooperate in the redevelopment of the Development Land: clause 6.

180. Of particular note for present purposes are those provisions relevant to the consideration for the transfer of the Development Land from Shiu Wing to Landco:-

(1) Part I of Schedule 2 set out the terms for inclusion in the assignment of the Development Land. The Schedule refers to an initial cash consideration of $12,714,856,874 and deferred consideration being effectively a share of the profits of any redevelopment of the Development Land (using a formula that needs no elaboration in this appeal).

(2) In relation to deferred consideration, clause 7 made reference to the parties negotiating and making a further agreement which was to contain, inter alia,

"(C) terms for the constitution and operation of the business of each of BVI(2) and Landco and, in particular, terms permitting SWS [Shiu Wing] to nominate one director to BVI(2) and one director to Landco, terms giving protection for SWS as a minority shareholder of BVI(2), and terms to ensure that X Co [Calm Seas] (or as the case may be) BVI(2) does not take or omit to take any action with the sold or main intention for preventing Landco from meeting the Deferred Consideration for the assignment of the Development Land as referred to in Schedule 2 to this Agreement."

(3) On the day of completion of the sale of the shares, Shiu Wing would deliver to Calm Seas, inter alia, a valid assignment of the Development Land at the initial consideration and also an agreement by Landco to pay deferred consideration:- clause 5.3.

181. The next agreement of relevance is the Sale and Purchase Agreement dated 7 April 1997 (which was referred to by Mr Goldberg as the "Share Sale Agreement", a term used by Cheung JA as well), entered into between the same parties as the earlier Heads of Agreement.

182. This Agreement superseded the Heads of Agreement:- see Recital (I). The following provisions are of note:-

(1) Since entering into the Heads of Agreement, Shiu Wing incorporated not two but four BVI subsidiary companies. The chain was Shiu Wing, Eastview (100% owned by Shiu Wing), Super Charge (100% owned by Eastview), Prepared (100% owned by Super Charge) and Arrowtown (100% owned by Prepared). See: Recital (J).

(2) Of these companies, it was envisaged that Prepared's shareholding would be reorganized as follows:- its share capital would be divided into a 1,000 'A' shares and 10,000 non-voting 'B' shares (clause 2).

(3) Following the reorganization of Prepared, Shiu Wing would procure the sale of 988 'A' shares (constituting 98% of the issue 'A' share capital which would overwhelmingly give control) to Calm Seas for a consideration $12,460,559,737:- clauses 3,4 and 5.

(4) The Development Land would be assigned by Shiu Wing to Arrowtown, once the land exchange with the Government took place "at the consideration" set out in Part I of Schedule 2 to the Share Sale Agreement:- clause 5.1(A). Arrowtown was of course controlled by Prepared.

(5) The sale of the shares to Calm Seas was again stated expressly to be conditional on the assignment of the Development Land by Shiu Wing to Arrowtown:- clause 5.1.

(6) There were again provisions relating to Calm Seas' obligation to redevelop the Development Land:- clause 6.

183. It will therefore be seen that this Agreement dealt not only with the sale and purchase of the shares but also contained a numerous provisions relevant to the proposed assignment of the Development Land by Shiu Wing. It is not inaccurate of Mr Goldberg to refer to this document as the Share Sale Agreement (and I will, for convenience only, use that term as Cheung JA has done), but its true nature has of course to be appreciated, in particular its relationship and reference to the assignment of the Development Land. Like the Heads of Agreement, it seeks to achieve the implementation of those objectives I have earlier identified.

184. As with the Heads of Agreement, I now draw attention to those provisions in the Share Sale Agreement relevant to the question of the consideration for the transfer of the Development Land by Shiu Wing to Arrowtown:-

(1) Part I of Schedule 2 made reference to both initial and deferred consideration. As in the Heads of Agreement, the initial consideration was stated to be $12,714,856,874 while the deferred consideration was related to the profits of the redevelopment of the Development Land.

(2) As to deferred consideration, Part 2 of Schedule 2 sets out in draft the terms in relation that aspect. One of the draft terms is clause 2.14:-

"2.14 In the event that dividends are declared and paid by Landco [Arrowtown] to the Company [Prepared] before completion of the Development or any other Interim Distribution is made by Landco and these, in aggregate, exceed the final amount of the Surplus Proceeds required by Landco to distribute to the Company, then an amount equivalent to the amount of the excess ("Excess") shall be paid to Landco by the Company or, to the extent that the Company has declared dividends or made any other distributions to its shareholder from any dividends and/or Interim Distributions received by it from Landco by Super Charge (up to the amount received by it from the Company) and Calm Seas (up to the amount received by it from the Company). 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. Swire and NTP [New Town] hereby irrevocably and unconditionally guarantee to SWS the due and punctual payment of the Excess (together with interest) payable by the Company or (as the case may be) Calm Seas pursuant to this paragraph."

The final form of this clause assumes great importance in the present appeal as will be seen below.

(3) On the day of completion of the sale of the shares, Shiu Wing was obliged to deliver to Calm Seas a valid assignment of the Development Land at the initial consideration and also an agreement by Arrowtown to pay deferred consideration:- clause 5.3.

185. Chronologically, the next document of note is the Memorandum which was dated 22 April 1997. It will be remembered that this is the relevant instrument on which the Collector submits stamp duty is payable. The Assignment of the Development Land from Shiu Wing to Arrowtown is also dated 22 April 1997. The payment by Arrowtown to Shiu Wing of the said consideration of $12,714,856,874 was by way of a non-interest bearing Loan Note Certificate also dated 22 April 1997 ("the Loan Note"). The Loan Note is relevant to Issue 2.

186. I now move on to one of the crucial documents in this appeal, the Agreement relating to Deferred Consideration dated 22 April 1997 ("the DC Agreement").

187. This Agreement was intended to set out the rights and liabilities of the parties thereto in relation to deferred consideration, as we have seen one of the aspects of the consideration for the transfer of the Development Land from Shiu Wing to Arrowtown. I pause here just to note that it formed no part of Mr Goldberg's case that deferred consideration was somehow not part of the consideration for the transfer of the Land.

188. The parties to this Agreement were Shiu Wing, Arrowtown, Super Charge, Prepared and Calm Seas.

189. The following points are of importance in relation to the DC Agreement:-

(1) Recital (B) made it clear it was a condition of the sale and purchase of the Development Land that Arrowtown should enter into an agreement for deferred consideration and the DC Agreement was accordingly supplemental to the Memorandum.

(2) Clause 4 (D) made reference to a shareholder's deed that would be entered into by Shiu Wing, Super Charge, Calm Seas, New Town and Swire to deal with the operation of Arrowtown and Prepared. It will be recalled that under the Share Sale Agreement, only 988 shares in Prepared would be sold to Calm Seas (albeit giving it total control of Prepared which in turn controlled Arrowtown which held the Development Land) allowing Shiu Wing to remain a shareholder in the relevant companies (through its shareholding in both 'A' and 'B' shares).

(3) Clause 14 stated as follows:-

"14. Clawback of dividends and Interim Distributions

In the event that dividends are declared and paid by Landco [Arrowtown] to the Company [Prepared] before completion of the Development or any other distribution is made by Landco and these, in aggregate, exceed the final amount of the Surplus Proceeds required by Landco to distribute to the Company, then an amount equivalent to the amount of the excess ("Excess") shall be paid to Landco by the Company or, to the extent that the Company has declared dividends or made any other distributions to its shareholders from any dividends and/or Interim Distributions received by it from Landco, by Super Charge (up to the amount received by it from the Company) and Calm Seas (up to the amount received by it from the Company). 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."

(4) Clause 15 stated as follows:-

"15. No interest in land created

The right of SWS [Shiu Wing] to Deferred Consideration and any assignment of unsold Units in specie in lieu thereof shall be a right in contract only against Landco. Such right shall not constitute or create any interest in land and SWS will disclaim and abandon any unpaid seller's lien on the Development Land or any interest therein. SWS shall give a written undertaking to this effect in such form as may reasonably be required by Landco."

(5) Clause 20 is also important to demonstrate that this Agreement was quite deliberate in setting out the consideration for the transfer of the Development Land. It stated:-

"20. No other Consideration

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 pursuant to the Memorandum (excluding legal expenses) is nil other than as disclosed in this Agreement."

(6) Clause 21 contained provisions dealing with the giving of notice as between the parties. It is perhaps interesting to note that this clause clearly exemplifies the existence of the two "camps" I have earlier made reference to, with Shiu Wing and Super Charge on the one hand and Calm Seas, Prepared and Arrowtown on the other.

(7) Clause 22(D) dealt with the address for service of process on Calm Seas, Prepared and Arrowtown by Shiu Wing and Super Charge. Like clause 21, this clause quite clearly demonstrates that there was clearly a contractual relationship between Shiu Wing and Calm Seas, an aspect I shall return to later.

190. As I have earlier indicated, the DC Agreement made reference to a shareholder's deed which was to be entered into between Shiu Wing, Super Charge, Calm Seas, New Town and Swire. Such a Deed was also executed on 22 April 1997 ("the Shareholders Deed").

191. The Shareholders Deed dealt with a number of aspects but we are concerned in particular with how Deferred Consideration was dealt with. Here, clause 9.2 stated as follows:-

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

192. The only other documents I need refer to are the various Assignments of the Loan Note all dated 22 April 1997 whereby the Loan Note for $12,714,856,874 was assigned by deed from Shiu Wing to Eastview, then to Super Charge and finally to Prepared, where it remains.

193. The above review of the relevant documents puts into context the materials that are germane to the four Issues I have earlier set out. It will be seen that all these Issues relate to the question of the consideration for the conveyance or transfer, sale or purchase of the Development Land from Shiu Wing to Arrowtown. I now turn to them.

Issue 1: Application of section 45(4)(a)

194. As Cheung JA has observed, stamp duty is payable on instruments whereby, as in this case, land in Hong Kong (called immovable property in the Ordinance) is transferred from one person to another:- see section 4 and Part IIIA of and the Schedule to the Ordinance.

195. There is, however, relief from stamp duty in the case of a conveyance or transfer of land from one company to an associated company: see section 45(1) of the Ordinance. An associated company is one in which one of the companies (whether transferor or transferee) is the beneficial owner of not less than 90% of the issued share capital of the other or another company is the beneficial owner of not less than 90% of the issued share capital of both transferor and transferee.

196. However, section 45(4) and (5) state 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."

197. Issue 1 is concerned with the effect of section 45(4)(a). Judge Cheung was of the view that a part of the consideration for the transfer (I use this word as shorthand for the words "conveyance, transfer, sale or purchase") of the Development Land was provided by a company that was not associated within the meaning of section 45. He referred to clause 14 of the DC Agreement in arriving at this conclusion. The learned Judge was of the view that under that clause, Calm Seas (an outsider or non-associated company) had provided in part the consideration for the transfer of the Development Land. Accordingly, section 45(4)(a) was engaged and the exemption from stamp duty otherwise provided by section 45, did not avail Arrowtown.

198. Mr Goldberg sought to attack the Judge's conclusion by reference to a number of arguments:-

(1) The whole of the consideration for the transfer came from Arrowtown and no one else. The Share Sale Agreement made this clear, it was submitted. In particular, reference was made to clause 5.1(A) in which the consideration for the transfer was stated to be that as described in Part 1 of Schedule 2 and to clauses 5.3(A)(3) and (4) which specifically referred to the initial and deferred consideration to be paid by Arrowtown (and no one else) to Shiu Wing. Furthermore, Schedule 2, which related to the initial and deferred consideration for the transfer, envisaged only agreements between Shiu Wing and Arrowtown.

(2) Neither Calm Seas nor anyone else was mentioned in the Share Sale Agreement as being a party to any agreement relating to either initial or deferred consideration.

(3) As far as clause 14 of the DC Agreement and clause 9.2 of the Shareholders Deed were concerned, the promises contained in these clauses were relevant only to the share sale and did not constitute any part of the consideration for the transfer of the Development Land. This was made clear by clause 5.3 of the Share Sale Agreement whereby, as it related to Shiu Wing and Calm Seas, any agreement to be made as regards deferred consideration was to be relevant only to the share sale. It will be recalled that under clause 5.3, any agreement made in relation to deferred consideration, was merely one of the documents to be delivered by Shiu Wing to Calm Seas on completion of the share sale. In further support of his submission here, Mr Goldberg referred to the learned Judge's conclusion that clause 9.2 was not a provision that constituted any consideration for the land transfer.

(4) Even if the above arguments were somehow wrong, clause 14 of the DC Agreement gave Shiu Wing no rights as against Calm Seas. Whatever that clause was directed to, it was relevant only as between the other parties to the DC Agreement and did not concern Shiu Wing. In this context, reference was made to clause 15 of the DC Agreement (as set out above) which stated that Shiu Wing only had rights against Arrowtown in contract as far as the deferred consideration was concerned.

(5) Even if clause 14 (or clause 9.2 of the Shareholders Deed) constituted some form of contractual obligation owed by Calm Seas to Shiu Wing, at most this only "protected" the deferred consideration and could not constitute a part of the consideration for the transfer.

199. Mr Goldberg also raised a number of new arguments directed to this Issue when replying to Lord Goodhart's submissions. I will refer to these further arguments under Issue 4.

200. I am unfortunately unable to agree with Mr Goldberg's submissions here. In my view, a part of the consideration for the land transfer was provided by a non-associated (or outside) company, namely Calm Seas, and the exemption from stamp duty sought by Arrowtown under section 45 of the Ordinance, is therefore rendered inapplicable by section 45(4)(a).

201. I have reached this view for the following reasons:-

(1) The starting point in assessing the impact of section 45(4)(a) is to ask the simple question: What was the consideration for the transfer of land?

(2) In posing this question, one has to bear in mind that the term "consideration" is a legal concept and bears the same meaning as it does in the law of contract. This was firmly established by the majority decision of the House of Lords in Shop and Store Development Ltd v The Commissioner of Inland Revenue 1967 AC 472, to which reference has already been made.

(3) The consideration for the land transfer included the initial consideration and the deferred consideration and of course, Arrowtown had liabilities to Shiu Wing in respect of these. However, as particularly shown by the DC Agreement itself, the obligations in relation to deferred consideration included other parties too. If it were otherwise, why, one asks rhetorically, would the parties (in the two "camps") have included a multi-party agreement such as the DC Agreement as part of the contractual documentation? So, purely as a matter of form (and in a tax context, this has to be given due respect), an outside party (namely Calm Seas) owed obligations to Shiu Wing as far as deferred consideration was concerned. But there is more.

(4) As a matter of substance, clause 14 (and in my view clause 9.2 of the Shareholders Deed as well) imposed on Calm Seas an obligation directly relevant to deferred consideration and it is an obligation owed to Shiu Wing. One can quite easily see why Shiu Wing would wish to be able to be assured that in the future, after redevelopment had taken place, Arrowtown would be in a financial position to pay deferred consideration to it. It will be recalled that the effect of the transactions referred to above was that Arrowtown would be controlled by Calm Seas and it is Arrowtown who had the obligation to pay deferred consideration to Shiu Wing. The effect of clause 14 and (clause 9.2 the Shareholders Deed) was to ensure that Arrowtown would be put or left in a position to pay deferred consideration to Shiu Wing. Clause 14 of course just deals with the clawback of dividends and interim distributions in this context. Clause 9.2 is in wider terms.

(5) Another way of approaching the matter is to ask just what Shiu Wing got as consideration for the transfer of the Development Land to Arrowtown. This was the way Lord Wilberforce approached the matter in Shop and Store at 502F-503B. The answer to this question is the initial consideration, the deferred consideration and Calm Seas's obligations to ensure that in certain circumstances, Arrowtown would be put in a position to pay the deferred consideration.

(6) If one wished to analyse the obligations of Calm Seas under clause 14 of the DC Agreement and clause 9.2 of the Shareholders Deed as being some form of collateral agreement made with Shiu Wing, this does not detract from the conclusion that, as a matter of law, it will form part of the consideration for the land transfer. In Phillips v Brewin Dolphin Bell Lawrie Ltd [2001] 1 WLR 143, Lord Scott of Foscote said at 150H:-

"The subsection does not stipulate by what person or persons the consideration is to be provided. It simply directs attention to the consideration for which the company has entered into the transaction. 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."

That case of course dealt with somewhat different statutory provisions, but the general principle, I believe, applies.

(7) I am simply not persuaded that clause 14 of the DC Agreement or clause 9.2 of the Shareholders Deed related to the share sale or if they did, that they did so exclusively. Afterall, the deferred consideration was very much an integral part of the consideration for the land transfer.

(8) As for the submission that clause 14 of the DC Agreement was in any event not an obligation owed by Calm Seas to Shiu Wing (who is admittedly not mentioned in it) nor intended to be so, I have already in part dealt with this in sub-paragraph (4) above. I would also refer to clause 7(C )of the Heads of Agreements (set out in paragraph 180(2) above) which seems to me to have paved the way for clause 14 as an obligation involving Shiu Wing and Calm Seas. The same can be said for clause 2.14 of the draft Deferred Consideration Agreement set out in Part 2 of Schedule 2 to the Share Sale Agreement (see paragraph 184(2) above). Finally, in this context, I would refer to the notice and service of process provisions contained in clauses 21 and 22 (D) of the DC Agreement. If a clause like clause 14 was not intended to be enforceable as between Shiu Wing and Calm Seas, it is difficult to see why these clauses were there.

(9) As for clause 15 of the DC Agreement, I derive little assistance from it. It is clear from the wording of that clause and its title, that the clause is intended merely to make the point that Shiu Wing's right to deferred consideration as against Arrowtown was not an interest in land but merely one in contract. It does not in my view mean that Shiu Wing's right under the DC Agreement was only as against Arrowtown and no one else.

(10) As to the point that at most, clause 14 of the DC Agreement and clause 9.2 of the Shareholders Deed merely "protected" the deferred consideration, I confess I am not sure what Mr Goldberg really meant by this as a matter of law and no reference to any authority was made. In a way, he is correct but it makes no difference. It is, as I have reasoned above, part of the consideration for the land transfer itself.

202. In summary, I am of the view that for the purposes of section 45(4)(a) of the Ordinance, when all the relevant agreements have been considered, consideration for the land transfer was in part provided by a company which was not a company associated with either the transferor of the Development Land (Shiu Wing) or the transferee (Arrowtown) at the time of the transfer. Accordingly, this Issue falls to be decided in the Collector's favour and is sufficient by itself for the present appeal to be dismissed, subject of course to the determination of those questions in Issue 4.

203. I would perhaps end on this Issue with the following observation. Throughout his submissions, Mr Goldberg urged this Court to separate the share sale from the land transfer and to recognise that a number of different transactions took place (see paragraph 175 above) at different times. It was of course no part of Lord Goodhart's submission that the transactions in this case were in anyway sham transactions. I fully accept this. My conclusion has been based on the interpretation as a whole of the very documents the parties have chosen to generate. As for timing, while it is true that the various agreements and documents were generated at different times, they were all linked and have to be seen in that light.

Issue 2: Application of section 45(5)

204. In the court below, this aspect formed an alternative submission by the Collector to justify her view that stamp duty was chargeable. Judge Cheung also found in the Collector's favour on this aspect, again depriving Arrowtown of the associated company exemption in section 45.

205. This argument focuses on the Loan Note which passed from Shiu Wing to Eastview and then ultimately to Prepared.

206. The Collector's arguments here in relation to section 45(5) are basically these:-

(1) An arrangement is caught under that sub-section whenever a transferor of land parts with any part of the consideration received for the transfer, by or in consequence of a transaction or transactions involving a payment by a non-associated or outside company. This is of course not the only situation in which that subsection applies, but it is the one that the Collector maintains as being the relevant one in the present case.

(2) Translated to the facts of the present case, as the transferor (Shiu Wing) parted with the Loan Note (ultimately to Prepared) and that, as seen above, it received $12,460,559,737 from Calm Seas pursuant to the Share Sales Agreement, section 45(5) is therefore engaged.

207. Without meaning any disrespect to Lord Goodhart's submissions or to the Judgment below, I would dispose of these arguments quite shortly:-

(1) Section 45(5) is stated to be without prejudice to section 45(4)(a). It must therefore not only be seen in the light of section 45(4)(a) but is also subject to it. Thus, while admittedly section 45(5) provides an example of how section 45(4)(a) is applicable in the situation referred to therein, it (section 45(5)) must also be read consistently with the earlier subsection.

(2) Put bluntly, it is difficult to see how a case could fall within section 45(5) if it can be demonstrated that section 45(4)(a) is otherwise inapplicable. I fully accept that the situations articulated in section 45(5) are intended to clarify just what 45(4)(a) means, but I find it quite impossible to read it inconsistently with the earlier sub-section.

(3) As I see it, the main point that divides the parties is that while the Collector argues it is enough if the relevant consideration has been parted with by the transferor of the land (even to an associated company, as in the present case), Arrowtown submits that the parting of the consideration must, as required by section 45(4)(a), be to a non-associated company or outsider. Otherwise, Mr Goldberg submits, the effect of section 45(5) would be wider and indeed with prejudice to section 45(4)(a).

(4) As a matter of logic and statutory interpretation, I am in agreement with Mr Goldberg here. The fundamental requirement in section 45(4)(a) that the relevant consideration be received by a non-associated company, is not addressed in section 45(5) at all, a sure sign in my view that it was not intended to be affected. In the present case, it has not been suggested by Lord Goodhart that the Loan Note was received, directly or indirectly, by Calm Seas and indeed it is easy to see why the suggestion was not made. It was received by Eastview and then later, Prepared. Another way of putting the matter is this. The situations referred to in section 45(5) must be fitted into s 45(4)(a). Thus, one always needs to ask the question: was the consideration for the transfer, or any part thereof, provided or received (directly or indirectly) by a non-associated company?

(5) That is enough to dispose of the point. If it had been necessary, I would also have found in Mr Goldberg's favour on the basis that in any event, the parting of the Loan Note was not as a consequence of the carrying out of a transaction or transactions involving the payment by Calm Seas to Shiu Wing. It may have been part of the overall arrangement between the parties but that was not what section 45(5) says.

(6) Where I think the learned judge fell into error was in thinking that section 45(5) was an enlarging provision to section 45(4)(a) (see for example paragraph 99 of his Judgment). In my view, it was not and must be read subject to it. I readily accept as an argument the point made by the learned Judge that if section 45(5) was to be restricted in the way I have suggested, this would unduly narrow the effect of that subsection. The argument runs like this: if a transaction is caught by s 45(4)(a) anyway (because, say, the consideration was received by an outsider), what is the point of section 45(5)? This is indeed on its face an attractive point but in my view it provides no answer to the points I have earlier made. If one needed to ask what was the point of section 45(5), it was I think to make absolutely clear that the facts of Shop and Store would now be differently regarded. Cheung JA has already set out the facts of that case and has also made the point that our section 45(5) was in fact based on amendments made in the UK to the stamp duty legislation there in consequence of the Shop and Store decision.

208. For the above reasons, Issue 2 is to be resolved in Arrowtown's favour.

Issue 3: Ramsay

209. Much has been written and said about Ramsay since it was decided by the House of Lords. Cheung JA has, with respect, identified key passages in that and other cases, and it is on the whole unnecessary for me to repeat them.

210. The Ramsay Principle, as it is sometimes referred to, is often stated to be comprised in the following excerpt from the speech of Lord Brightman in Furniss v Dawson [1984] AC 474, at 527: -

"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 (ie business) end ... Secondly, there must be steps inserted which have no commercial (business) purpose apart from the avoidance of a liability to tax. 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."

211. It is somewhat misleading to state the principle merely in these terms and I daresay, this has inevitably led to a state of some confusion (not to mention controversy) in the way tax authorities in many common law jurisdiction have approached their task.

212. It is now established by courts at the highest levels that the so-called Ramsay Principle has two facets, one following the other. First, it is important to construe the relevant tax legislation to analyse just what it means and what situations it is meant to cover. Secondly, following from that analysis, the facts of any given "tax" situation are then analysed accordingly. A brief reference to two cases (which are among many) will suffice to make good this observation.

213. In Shiu Wing Ltd & Others v Commissioner of Estate Duty (2000) 3 HKCFAR 215, a decision of the Court of Final Appeal on sections 3, 6 and 10 of the Estate Duty Ordinance, Cap. 111, this was clearly the analysis and approach of the Court. At 227H-I, Litton PJ said this:

" What is clear from this and other similar passages in Craven v White [1989] AC 398, and in later cases such as Fitzwilliam v IRC [1993] STC 502 and IRC v McGuckian [1997] STC 908, is that the court seeks to apply the relevant taxing statute to 'the actual transaction the parties were effecting in the real world' (per Lord Browne-Wilkinson in Fitzwilliam v IRC [1993] STC 502 at p.535C) rather than the artificial devices in which the parties chose to clothe it 'in the surreal world of tax advisers'. Ultimately, what the court has to look at is the end result; how the end result will be taxed will depend upon the terms of the relevant taxing statute."

214. In the same case, Sir Anthony Mason (with whose Judgment the Chief Justice, Bokhary PJ and Silke NPJ agreed), said this at 239I-240B:-

" 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, WT Ramsay Ltd v IRC [1982] AC 300 is also a rule of construction."

215. More recently, in England, the House of Lords has revisited Ramsay. In Macniven v Westmoreland Investments Ltd [2001] 2 WLR 377, the House of Lords dealt with corporation tax (thus involving the Income and Corporation Taxes Act 1988, in particular section 338). In his speech, Lord Nicholls of Birkenhead said at paragraph 1(page 379G):-

" In the Ramsay case the House did not enunciate any new legal principle. What the House did was to highlight that, confronted with new and sophisticated tax avoidance devices, the courts' duty is to determine the legal nature of the transactions in question and then relate them to the fiscal legislation: see Lord Wilberforce, at p 326."

He added at paragraph 8 (381D-E):

" My Lords, I readily accept that the factual situation described by Lord Brightman is one where, typically, the Ramsay approach will be a valuable aid. In such a situation, when ascertaining the legal nature of the transaction and then relating this to the statute, application of the Ramsay approach may well have the effect stated by Lord Brightman. But, as I am sure Lord Brightman would be the first to acknowledge, the Ramsay approach is no more than a useful aid. This is not an area for absolutes. The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case."

216. So far, the Ramsay Principle can be seen as an exercise in construing the relevant statute and then applying it to the facts of the case. Where, one might ask, was the innovation in that? This is no different from the court's approach whenever a statutory provision is under scrutiny. I believe the innovation of the Ramsay Principle lies in the treatment and analysis of tax devices. Here, I return to the words of Lord Brightman in Furniss v Dawson, for it is there that the innovation of the Ramsay Principle lies. It is the court's approach to the facts.

217. However, before one gets to the application of Lord Brightman's words, it is necessary first to construe the relevant statute. As Lord Hoffmann said in Macniven at paragraph 49 (393C-D):

" 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."

218. In the construction of tax legislation, the dichotomy with which most cases are concerned (and the present case is no exception) can be put as follows:- does the statute refer to general commercial concepts and therefore should be treated as such or, rather, do the terms used in the statute have a narrow, even strict or juristic, meaning?

219. It is only when this is resolved that one can then really discuss what is "real" or "artificial" in any given set of facts. In other words, it is unhelpful to categorise transactions as being either "real" or "artificial" (themselves somewhat tendentious terms) until one has properly construed the relevant legislation.

220. Sometimes, terms used in tax legislation are given a wide commercial meaning (as opposed to a narrow juristic one). In Ramsay itself, the words "disposal" or "loss", in the context of capital gains tax (the Finance Act 1965), were given a wide commercial meaning. Indeed, as Lord Hoffmann said in Macniven in paragraph 32 (388B), "the innovation in the Ramsay case was to give the statutory concepts of 'disposal' and 'loss' a commercial meaning.".

221. In contrast, however, sometimes terms in tax legislation do not have a broad commercial meaning. It is crucial to bear this in mind because in this situation, the innovation introduced by the Ramsay Principle (contained in Lord Brightman's words in Furniss v Dawson (see paragraphs [44] and [50] above) has little, if any, application. Lord Hoffmann put the matter in this way in his speech in Macniven at paragraph 49 (following on from the passage I have given in paragraph [51] above) (393C-E):-

" 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."

222. And so I come to the Collector's case. Lord Goodhart submitted that the concept of "consideration" in section 45(4)(a) should be given a broad commercial meaning and not just the narrow, juristic meaning hitherto assumed. In effect, he submitted that the word "consideration" should now, in the light of Ramsay and Macniven, be given the meaning that the minority of the House of Lords gave it in Shop and Store. The result would then be in the present case that the consideration for the purchase of the Development were the monies paid by Calm Seas for the shares in Prepared (i.e. $12,460,559,737). This is to take an overall view of the commercial effect of all the transactions, combining both the share and land sales.

223. I am unable to accept these submissions.

224. First, neither Ramsay nor Macniven states that tax legislation should now always be construed with a commercial purpose in mind. The courts, I accept, may be ready to do so in relation to some legislation (as I have said, this was said to be the innovation of the actual decision in Ramsay itself). However, the courts must still construe the relevant legislation to see just what it really means.

225. Secondly, where one might term technical, juristic or legal words are used, the court will be more, not less, likely to give them a strict or narrow meaning. Here, I refer again to the speech of Lord Hoffmann in Macniven at paragraph 58 (395F-H):-

"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. If the 'disregarded' steps in Furniss v. Dawson [1984] AC 474 had involved the use of documents of a legal description which attracted stamp duty, duty would have been payable."

226. Thirdly, in the present instance, the word "consideration" is, in my view, a very well established legal and lawyer's term. It is a strange term to use if what was meant was something much wider and more "commercial". I would even say laymen would rarely use a term such as "consideration" to describe their deal. The particular wording used in section 45 as a whole is full of legal terminology (for example "beneficial interest", "conveyance" etc.) "Consideration" is one such term) I would in this context refer to the following passage from the speech of Lord Reid in Wm. Cory & Son Ltd v Inland Revenue Commissioners [1965] AC 1088, at 1107:-

" Then counsel for the respondents said, no doubt truly, that if this appeal were allowed the door would be open for wholesale evasion of stamp duty. But that consideration has never prevailed over the rule that the words of a taxing Act must never be stretched against a taxpayer. And there is a very good reason for that rule. So long as one adheres to the natural meaning of the charging words the law is certain, or at least as certain as it is possible to make it. But if courts are to give charging words what is sometimes called a liberal construction, who can say just how far this will go. It is much better that evasion should be met by amending legislation. One is familiar with this in the realm of income tax, and if the ingenuity of taxpayers' advisers is now turning to the Stamp Act no doubt that in time will be met in the same way."

227. For these reasons, therefore, the stage of applying Lord Brightman's words in Furniss v Dawson is not reached. "Consideration" does not have the broad commercial meaning the Collector seeks to give it. I am accordingly in agreement with Cheung JA that this Issue is also to be resolved in favour of Arrowtown.

Issue 4: Other Points

228. In his reply, a number of hitherto unargued points were briefly made by Mr Goldberg. These points are not contained in the Notice of Appeal, but Lord Goodhart did not object to their being raised. There were essentially two points.

229. The first runs along these lines:

(1) The particular instrument with which this case is involved is of course the Memorandum. That document, being an "agreement for sale" as defined in section 29(A)(1)of the Ordinance, is liable to be charged with stamp duty under Head 1(A) of the First Schedule to the Ordinance.

(2) An agreement for sale must state various matters:- see section 29B(1). One such matter is the value of the consideration for the agreement for sale and any subsequent assignment of the relevant land: - section 29B(5)(i) and (j). For the purposes of the Ordinance, it is the aggregate of the amounts and values of the matters referred to in these subsections that comprise the consideration for an agreement for sale: - section 29C(8). These provisions have already been set out in the Judgment of Cheung JA (see paragraphs 155 and 156 above.)

(3) Therefore, even if (contrary to what Mr Goldberg had contended earlier), the consideration for the transfer of the Development Land did consist of Calm Seas' obligations under clause 14 of the DC Agreement and/or clause 9.2 of the Shareholders Deed or indeed any consideration other than the said sum of $12,714,856,874 and the deferred consideration obligations of Arrowtown, the value of these items of consideration was nil or at least the parties gave them no value.

(4) Accordingly, by reason of section 29C(8) and for the purposes of the Ordinance, these other aspects of the consideration, even if they might otherwise amount to consideration of law, are to be ignored.

230. I am unable to agree with Mr Goldberg:-

(1) I do not see how the failure to give a value to the consideration contained in clause 14 of the DC Agreement and/or clause 9.2 of the Shareholders Deed can affect the analysis of section 45 of the Ordinance, if either or both of these aspects does otherwise constitute good consideration at law. I suppose some kind of value could have been put on these items. Furthermore, it is also stated in section 29C(2)(a) that stamp duty is chargeable under Head 1(1A) on an agreement for sale notwithstanding that it does not contain any of the matters required by section 29B(5). One does not escape stamp duty therefore by omitting to state the value of the true consideration.

(2) If what Mr Goldberg really meant was that the value of this consideration was in reality nil and therefore should be ignored altogether for that reason, there is no evidence of that other than the fact that the parties did not give a value to this consideration. Lord Goodhart, for his part, did not of course accept this submission and made the obvious retort that just because the parties had not placed a value on clause 14 or clause 9.2, this did not mean that they had no value at all. I would add this. If, as Mr Goldberg accepted, the deferred consideration was a part of the consideration for the transfer of the Development Land, equally no value was placed on this by the parties.

231. The second of the miscellaneous points raised by Mr Goldberg was that for the purposes of section 45 of the Ordinance, the only consideration that was relevant was the consideration moving from the transferee to the transferor of the Development Land. This was said to follow from various passages in Shop and Store.

232. Again, I am not persuaded by these submissions:-

(1) It is crucial to bear in mind the correct scope of the inquiry here. It is this: for the purposes of section 45(4)(a) of the Ordinance, has the consideration or any part of it for the transfer of the Development Land been provided or received by a person who was not an associated company within the meaning of section 45?

(2) To say therefore that only the consideration moving from the transferee to the transferor is relevant, is to answer the above question in favour of the taxpayer every time. As analysed above in relation to Issue 1, the approach is to examine just what was the consideration for the transfer and then identify who has provided it.

(3) In any event, as Lord Wilberforce said in the Shop and Store at 503G, "Consideration payable by, or moving from, one party to a contract to another, may quite well be provided by an outside party and still be, as between the contracting parties, the consideration for the contract."

233. For the above reasons, the questions raised in Issue 4 are to be resolved in the Collector's favour.

Outcome of appeal

234. In summary, I determine Issue 1 in favour of the Collector, Issue 2 in favour of Arrowtown, Issue 3 also in Arrowtown's favour, and Issue 4, in favour of the Collector.

235. Accordingly, for my part, I would dismiss the appeal with costs.

Hon. Chung J. :

236. I have the benefit of reading the draft judgments respectively of Hon Cheung JA and Hon Ma JA. I am in full agreement with the draft judgment of Hon Cheung JA and have nothing further to add.

Hon. Cheung J.A. :

237. By a majority the appeal is allowed. The determination of the Collector on the payment of stamp duty by Arrowtown is set aside. There will be costs nisi of the appeal and of the proceedings in the District Court to Arrowtown.

Remarks: