Arula Investment Company Ltd v Commissioner of Stamp Duties [1997] FJHC 92; Hbc0420j.96s (22 July 1997)

Fiji Islands - Arula Investment Company Ltd v The Commissioner of Stamp Duties - Pacific Law Materials

IN THE HIGH COURT OF FIJI

At Suva

Civil Jurisdiction

CIVIL ACTION NO. 0420 OF 1996

BETWEEN:

ARULA INVESTMENT COMPANY LIMITED

Plaintiff

AND:

1. THE COMMISSIONER OF STAMP DUTIES

2. THE ATTORNEY GENERAL OF THE REPUBLIC OF FIJI

Defendants

Mr. R. Gordon for the Plaintiff

Ms. N. Basawaiya for the Defendants

JUDGMENT

By a contract of Sale and Purchase dated the 12th of November 1991, the plaintiff company ARULA INVESTMENT COMPANY LIMITED ('ARULA') "... agreed to purchase (a) sawmilling operation for the purchase price of $500,000 (Five Hundred Thousand Dollars) ..." ('the Agreement) from PACIFIC LUMBER COMPANY LIMITED ('PACIFIC').

It is common ground that the Agreement in question is an 'instrument' for the purposes of the Stamp Duties Act (Cap. 205) and therefore chargeable with 'stamp duty' for which ARULA as the purchaser/transferee was by Clause 11 of the Agreement made solely liable.

On the 27th of May 1992, Solicitors acting for ARULA sent the Agreement to the Commissioner of Stamp Duties ('The Commissioner') together with a covering letter and a cheque for $4,003 being for 'stamp duty' calculated at the rate of 2% on $200,000 (i.e. the consideration for the 'land and buildings') plus a nominal 'stamp duty' of $1.00 (one dollar) for 'the plant equipment and machinery' and '$2 for two copies'.

The Commissioner disagreed with the solicitor's submission and in the exercise of his powers under the Stamp Duties Act (Cap. 205) assessed the 'stamp duty' payable on the Agreement "... on the consideration amount at the rate of 2% which amounts to $10,000.00". The assessed amount was duly paid under protest.

On the 9th of September 1996, ARULA issued an Originating Summons in which it sought a 'declaration' that it was only liable to pay the sum of $4,001.00 'stamp duty' on the above-mentioned Agreement and it sought the refund of $5,999.00 being the sum it claims was an over-payment together with interest at the rate of 13.5% per annum.

The plaintiff's Originating Summons was supported by an affidavit sworn not by an official of ARULA but, by a clerk in the firm of solicitors acting for ARULA and which, in large part, quite improperly advanced not "... facts as the deponent is able of his own knowledge to prove" (See: Order 41 r.5), but opinions as to the meaning of the Agreement and the proper interpretation to be given to the provisions of Section 29 of the Stamp Duties Act (Cap. 205).

I state the above advisedly because a copy of the Agreement which formed Annexure 'A' to the affidavit indicates on its back cover that it emanated out of the offices of Messrs. Bulewa Inoke Vuataki & Semisi in Suva and not out of the law firm in which the deponent was an employee.

Be that as it may the Agreement is before the Court and in its most relevant parts reads:

"(indecipherable) 12th day of November 1991

BETWEEN PACIFIC LUMBER COMPANY LIMITED a duly incorporated company having its registered office in Lautoka (hereinafter together with its successors and assigns referred to as "the Vendor") of the one part AND ARULA INVESTMENT COMPANY LIMITED a duly incorporated Company having its registered office in Ba, (hereinafter together with its successors and permitted assigns referred to as "the Purchaser") of the other part.

(a) The Vendor is the proprietor of a sawmilling operation together with the buildings, machinery and equipment situate on the land comprised in Certificate of Title No. 23022 (hereinafter referred to as "the said Sawmilling Operation").

(b) The Vendor has been carrying on the said sawmilling operation at Vatukoula has agreed to sell and the purchaser has agreed to purchase the said sawmilling operation for the purchase price of $500,000.00 (Five Hundred Thousand Dollars) ($200,000.00 for Land and Buildings and $300,000.00 for plant equipment and machinery) under the terms and conditions herein.

NOW THEREFORE THIS AGREEMENT WITNESSETH AS FOLLOWS:

1. THE Vendor will sell and the Purchaser will purchase the said sawmilling operation for the purchase price of $500,000.00 (Five Hundred Thousand Dollars) free of all encumberances in the manner hereinafter provided.

5. THE Vendor shall give possession of the said sawmilling operation to the Purchaser on the Approval Date and the Purchaser shall be entitled to have access to same for the purposes of installing new equipment and buildings or repairing existing equipment and buildings and making the said Sawmilling Operations ready for production but shall not be entitled to operate same for profit or otherwise without the consent of the Vendor.

As for the introductory part of the Agreement it is deposed in the affidavit in support:

"5. THAT ... in its preamble at paragraph (b) specifically and expressly provided for separate and distinct items to be sold and purchased with their respective values specified."

and

"6. THAT the respective values specified the separate and distinct items were $200,000 ... for the land and building and $300,000 to the (plant, equipment and machinery) - making a total consideration sum of $500,000 ..."

For his part the Acting Commissioner of Stamp Duties in denying in his affidavit that the Agreement fell within the ambit of Section 29(1) and (2) of the Stamp Duties Act (Cap. 205) deposed that:

"... stamp duties of 2% was levied on the total consideration of $500,000 for the sale of the Sawmilling Operation",

in so far as he was of the view that:

"the sale and purchase agreement was for the sale of an (sic) Sawmilling Operation as a going concern and not as separate and distinct items."

Counsel for ARULA in support of the application referred to the 'recitals' to the Agreement and argued that 'it was made very clear that the sale was specifically in respect of separate and distinct items with the values separately specified' and, as an alternative argument, counsel submitted that the Agreement is clearly comprised in 'an instrument made for more than one consideration' and therefore, in both respects fell within the clear wording of Section 29 of the Stamp Duties Act (Cap. 205).

Counsel also forcefully argued that the intention and purpose of Section 29 was to obviate the necessity of drawing up or preparing separate instruments to deal with 'distinct matters' or with 'more than one consideration' where such 'matters' and 'considerations' are sufficiently plainly set out or apportioned in the one instrument.

State Counsel for her part relying on dicta in A.G. v. Cohen (1937) 1 K.B. 478, submitted that if there was an 'interdependence' between the seemingly 'distinct matters' contained within the same instrument then Section 29 did not apply.

In this particular case, State Counsel submitted that properly and fairly viewed, the Agreement relates to a single transaction namely, the sale of a sawmilling business as a going concern (See: Clauses 5 & 9) and the notional separation and apportionment which the parties sought to make in 'recitals (b)' was 'a mere device to evade the stamp duty payable'.

In order to resolve these opposing submissions it is necessary to briefly consider the provisions of the Stamp Duties Act (Cap. 205). In this regard Section 3 provides for 'Stamp Duty' to be levied in respect of various 'instruments' specified in the Schedule to the Act and, in particular, the Schedule provides that a 'transfer on sale' attracts duty on a scale according to the consideration money at the rate of $2.00 'for every $100 ... of consideration money' i.e. 2%.

Reference may also be made to Section 98 which provides that an agreement for the sale of any estate or interest in any property shall be charged with "... the same ad valorem duty to be paid by the purchaser as if it were an actual transfer on sale of the estate ... or property contracted or agreed to be sold".

The Act also relevantly defines in Section 2 a 'transfer on sale' as including:

"... every instrument ... whereby any property or any estate or interest in any property upon the sale thereof is transferred to or vested in the purchaser ..."

It is sufficiently plain from the charging section and from numerous authorities that 'stamp duty' is imposed on 'instruments' and not on transactions.

In this latter regard it is sufficient to refer to the dicta of Lord Esher M.R. in IRC v. G. Angus & Co. [1889] UKLawRpKQB 133; (1889) 23 Q.B.D. 579 when he said at p.589:

"The first thing to be noticed is, that the thing which is made liable to the duty is an 'instrument' ... It is not the transaction of purchase and sale which is struck at; it is the instrument whereby the purchase and sale are effected which is struck at ... The next thing is that it is not every instrument which is brought into being ... which is struck at. It is the instrument whereby any property upon the sale thereof is legally or equitably transferred. The taxation is confined to the instrument whereby the property is transferred ..."

Nothing in this case turns however on those observations since it is common ground that the Agreement is an 'instrument' for stamp-duty purposes in so far as it is a 'written document' through which ARULA acquired the legal ownership and equitable interest in both the land and sawmill the subject-matter of the Agreement.

I turn then to consider the meaning and effect of Section 29 of the Stamp Duties Act (Cap. 205) which ARULA seeks to invoke and which provides:

"(1) Except where express provision to the contrary is made by this or any other Act an instrument containing or relating to several distinct matters is to be separately and distinctly charged with duty in respect of each of such matters as if each matter were expressed in a separate instrument.

(2) An instrument made for more than 1 consideration is to be charged with duty in respect of each such consideration according to the rate with which each is chargeable as though such consideration were expressed in a separate instrument."

In construing the above provision I recall the frequently quoted passage in the judgment of Lopes L.J. in Great Western Railway Co. v. I.R.C. [1893] UKLawRpKQB 203; (1894) 1 Q.B. 507 at 513 when he said:

"It is an established rule in cases under the Stamp Acts that the substance of the transaction is alone to be looked at in determining the question whether an instrument is liable to stamp duty."

In similar vein North J. said in Commissioner of Stamp Duties v. International Packers Ltd. and Anor. (1954) N.Z.L.R. 25 (C.A.) at p.50:

"... once the Commissioner has before him an instrument, he is entitled to examine the whole of the circumstances and is entitled to have regard to the substance of the transaction or transactions, and is not bound by the form of the instrument."

More recently the House of Lords held inter alia in W.T. Ramsay Ltd. v. I.R.C. [1981] UKHL 1; (1981) 1 ALL E.R. 865:

"It was the task of the Revenue and the Courts to ascertain the legal nature of any transaction to which it is sought to attach a tax or tax consequence, and ... where a taxpayer used a scheme comprising a number of separate transactions with the object of avoiding tax, the Revenue and the Courts was not limited to considering the genuineness or otherwise of each individual step or transaction in the scheme, but could consider the scheme as a whole ..."

At this stage bearing the above in mind, I would highlight from Section 29(1), the word 'distinct' in the phrase 'several distinct matters', and, in Section 29(2), the words 'made for' in the phrase '... instrument made for more than 1 consideration'.

The simple question in this case is, - What in substance is the transaction expressed by the Agreement entered into by ARULA and PACIFIC? or to put the question in 'Section 29' language, - Does the Agreement between ARULA and PACIFIC contain or relate 'to several distinct matters'? or Was the Agreement 'made for more than 1 consideration'?

In this regard having carefully considered the various provisions of the Agreement, and the submissions of counsels, I am driven to the conclusion that 'in substance' the Agreement was an entire contract for the sale and purchase of a 'sawmilling operation' intended to be continued and operated as such and NOT for 'several distinct matters' or 'more than 1 consideration'.

I am fortified in my view by the judgment of Adam J. in Controller of Stamps v. Martin [1967] VicRp 42; (1967) V.R. 369 where his honour in rejecting the appropriation of the purchase price in the contract of sale in that case between the land and the personalty, said at p.373:

"In my opinion, the appropriation by the contract of part of the price to the chattels is, ... clearly one for convenience in the apportionment for duty purposes of the entire consideration, the assumption no doubt being that the resulting transfer of the land would be assessed with transfer duty on a sale at the consideration apportioned to the land, and I do not consider that this warrants my finding that the transaction is other than one entire indivisible transaction and I so hold."

Later in his judgment, his honour in considering the provisions of Section 22(a) of the Stamps Act 1958 (Vic) which is in identical terms to our Section 29(1) observed that, so far as he was aware from his researches, Section 22(a) had only ever been successfully invoked by the revenue authority with the object of obtaining a higher duty than would otherwise be chargeable and never by a taxpayer seeking to reduce the amount of duty.

In rejecting the applicability of the section to the contract before him Adam J. said at p.374:

"Section 22(a) ... deals with the case of one instrument, and would appear to be directed to the ... purpose of protecting the revenue ... The explanation and justification for the section, ..., would seem to be a long-settled and well estbalished rule of stamp law that one instrument attracts one duty only. The appropriate duty being determined by its leading object."

Then in dealing in greater detail with the wording of Section 22(a) his honour said (also at p.374):

"(the Section) applies where an instrument contains or relates 'to several distinct matters', and contemplates that if each of such matters were dealt with in a separate instrument, duty would be chargeable thereon. Certainly the contract of sale covers both real property and personal property - that is, distinct classes of property - but is it for this reason an instrument relating to distinct matters within the meaning of the Section? As already stated, I consider that the contract although dealing with two different classes of property, is one entire and unseverable contract, the whole of the property sold being sold together for one entire consideration. It should not be inferred that the vendor would have sold for the agreed consideration the land, unless the purchaser had agreed also to purchase the personal property, nor that the purchaser would have agreed to purchase the personal property for the apportioned consideration, unless the vendor had agreed also to sell the real property.

If these are the relevant considerations, I would certainly see no ground for concluding that this was an instrument relating to several distinct matters. Rather it relates to one matter only, that matter being a sale together of both real and personal property."

Finally Adam J. said in words that are equally applicable to the present case with only slight variations, at p.375:

"Even were I to be persuaded that the contract of sale related to 'distinct matters' within the meaning of the Section, I would be disposed to the view that the section could not be availed of by the appellant in this case for quite a different reason. From its very terms the section contemplates as the basis for its operation that each 'distinct matter' would, if the subject of a separate instrument, be separately and distinctly charged with duty. I think that it is to such a case only that it applies ... were Section 22(a) to be applied to the Contract of Sale by reason if its relating to 'distinct matters', the result would be that each of the matters would be chargeable with duty. The sale of the livestock and effects treated in isolation from the sale of the real property, as a sale for a bona fide adequate pecuniary consideration, would not be chargeable with any duty as a gift or otherwise."

Needless to say, despite the apparent apportionment of the consideration in recital (b), I would nevertheless hold that the Agreement was 'made for' and contemplated only one 'purchase price' namely $500,000 as is clearly set out in the 'recital' and Clause 1 and reinforced by Clause 3(a) which required a single 'deposit'; Clause 3(d) which envisaged a single outstanding 'balance sum' and the remaining payment Clauses where no distinction is made between payments for the 'land and buildings', on the one hand, and payments for the 'plant, equipment and machinery', on the other.

Indeed Clause 10 graphically illustrates to my mind both the unitary and indivisible nature of the Agreement insofar as it clearly requires 'payment in full of the said purchase price' before any registrable transfer shall be executed and delivered, without any attempt being made in the Clause to distinguish or separate either the 'purchase price' or the different subject-matters dealt with under the Agreement.

In McInnes v. Inland Revenue (1934) S.C.424 a Scottish case, a man entered into a 'feu-contract' with reference to a plot of land in Scotland. Before the execution of the 'feu-contract' a house had been built on the land in pursuance of an agreement entered into between the purchaser and a company of builders in which the vendor held a controlling interest. The original offer of the land by the vendor to the purchaser which offer was accepted, was made on the same date as the building contract, that is, at a time when there was no building on the land.

The Commissioner of Inland Revenue assessed the duty on the 'feu-contract' on the basis that the total consideration involved in the conveyance on sale included also the value of the house. On those facts the Court came to the conclusion that the assessment which covered both the 'feu-duty' capitalised and the price of the house was right.

The gist of the Court's decision appears in the judgment of Lord Morison who said at p.432:

"In this case there are two sets of documents, namely, the missives which are dated contemporaneously and which are part and parcel, in my opinion of one transaction. It seems to me that the effect of the missives is that the appellant bought a house and a site for it. That is the substance of the transaction, and a consideration of both sets of missives was necessary to ascertain the true consideration of the transaction. The value of the ground was 84/- and that was the consideration which the appellant gave for it. The value of the house was 630/-. It seems to me therefore that it is impossible to hold that this conveyance, which carries the right to both the site and to the house, is properly stamped with a stamp which covers only the price of the site."

In the present case parapharasing the above, I am firmly of the opinion that ARULA by the Agreement purchased a sawmilling operation and the land on which it stood.

For the foregoing reasons the assessment of the Commissioner of Stamp Duties is upheld and the Originating Summons is accordingly dismissed with costs to be taxed if not agreed.

D.V. Fatiaki

JUDGE

At Suva,

22nd July, 1997.

Hbc0420j.96s