Investment Corporation of Papua New Guinea v Pora, Minister for Finance and Physical Planning [1991] PGNC 34; N1150 (4 October 1991)

N1150

PAPUA NEW GUINEA
[NATIONAL COURT OF JUSTICE]

OS. NO. 30 0F 1989

INVESTMENT CORPORATION OF PAPUA NEW GUINEA
Applicant

- V -

PAUL PORA, MINISTER FOR FINANCE AND PHYSICAL PLANNING
First Respondent

AND

THE INDEPENDENT STATE OF PAPUA NEW GUINEA
Second Respondent

Waigani: Brown J.
1991: April 3 & Oct 4

Statute - Stamp Duties Act - Company title dwelling - Transfer of shares and registered subleases - Purchase of share capital - Share sale agreement nominated principal instrument for stamp duty assessment - Transfer of shares stamped with ad valorem duty - Agreement for sale assessed for duty under s 46 of the Act at 5% of total consideration - Whether duty be assessed on total consideration for transfer of shares as real property or as transfers of marketable securities - Stamp Duties Act ch. 114 s 46, Div 9.

The applicant, a company, purchased share capital of Sunset Apartments consisting of 15 residential units. The Articles of Association of Sunset Apartments Pty Ltd, a company that owns "Sunset Apartments" provides that ownership of particular shares entitled the owner to exclusive use of a particular unit in the building with the right to sublease. The applicant executed contracts with various vendors to purchase the whole of the share capital of Sunset Apartments Pty Ltd. By virtue of the contract transfers of shares and registered subleases were signed. The Share Sale Agreement was nominated as the principal instrument for assessment of stamp duty. The transfers were stamped with ad valorem duty and the Agreement for sale was assessed for duty under s 46 of the Stamp Duties Act as an interest in property at a rate of 5% of the total consideration. The applicant paid under protest and subsequently appealed from the decision. The question is whether duty should be assessed on the total consideration for the transfer of shares as if such Agreement for sale falls within the terms of s 46 and therefore assessable at 5% or at 1% as provided by Division 9 dealing with transfer of marketable securities.

Held:

(1) A share confers on the holder no legal or equitable interest in the assets of the company; it is a separate piece of property.

Charles v. Federal Commissioner of Taxation [1954] HCA 16; (1953-54) 90 CLR 598 at 609. Nowhere can the owner of a share for instance, demand that the company transfer to him an indefeasible title to a particular unit. Were it so, such a transfer would, on its face, be such an instrument envisaged by s 46(1).

(2) The property cannot be subdivided in a manner envisaged so as to provide an identifiable portion and the share of the property company does not confer a right on such shareholder to call for a transfer to him of a particular part of the assets of the company. For these reasons, pleading the Agreement for sale of shares, in equity, in these Courts cannot afford a plaintiff any help, were he to seek orders conferring on him an interest in land to the extent of an indefinitely continuing right to occupy a particular unit. Thus there is no basis in law to say that the predominate purpose of the Agreement and associated documents is to transfer an interest in real property.

(3) The Agreement for sale of shares is not an instrument that has the effect of conferring an indefinitely continuing right to occupy any real property. That right is provided for in the Articles of Association and not in the Agreement.

(4) Section 46(1) cannot catch a share transfer and give it an entirely different cloak. It is the Articles of Association which determines the legal and equitable rights of the share holder thus conferred by share ownership.

(5) The phrase "has the effect of" in s 46(1) relates to the instrument.

(6) On the face of the document the transfer of shares falls within s 1(1) as a transfer of marketable security and accordingly attract duty at the rate of 1% of the consideration.

Cases cited:
The following cases were cited in the judgment.
Charles v. Federal Commissioner of Taxation [1954] HCA 16; (1953-54) 90 CLR 598.

Appeal

The applicant appeals against the decision of the Local Assessor of Stamp Duties to stamp the transfer of shares with ad valorem duty and the Agreement for Sale of Shares was assessed for duty pursuant to s 46 of the Stamp Duties Act at the rate of 5% of the total consideration.

Mr E. Anderson, for the Applicant.
Mr J. Weigall, for the Respondent.

4 October 1991

BROWN J.: The applicant is a company which purchased the share capital of another company called Sunset Apartments Pty Ltd. This latter company was the registered proprietor of land comprised in at State Lease Volume 1 Folio 126 Port Road Granville West Port Moresby upon which had been erected fifteen residential apartments, or units. These units were known as "Sunset Apartments". The articles of association of Sunset Apartments Pty Ltd provided that ownership of particular shares entitled the owner to exclusive use of a particular unit in the building with a right to sublease. "Sunset Apartments" may in common parliance be called a "company title dwelling". There is no strata title ownership provided for by legislation in Papua New Guinea, and apart from joint ownership whether as tenants in common or joint tenants, company title affords the principle method for ownership of such high rise or unit blocks.

The applicant on the 8 November 1988 executed contracts with various vendors to purchase the whole of the share capital of Sunset Apartments Pty Ltd. Pursuant to that contract appropriate transfers of shares and transfers of registered subleases were also signed. The Share sale agreement was nominated as the principal instrument for Stamp Duty purposes, and on the 15 November 1988 under hand of N. Bogan the Local Assessor of Stamp Duties an assessment of stamp duty issued. The transfers were stamped with ad valorem duty and the agreement for sale was assessed for duty pursuant to s 46 of the Stamp Duties Act ch 114 at the rate of 5% of the total consideration in the sum of K102,286.20. This amount was paid under protest. The agreement for sale was completed on the 1 December 1988 and on the 11 January 1989, the applicant through its lawyer, by letter advised the Minister for Finance and Planning (the Minister responsible for Administration of the Act) of the applicants intention to appeal against the assesment and sought that he state a case setting out the basis of the assessment for duty for this Courts consideration and determination.

The applicant by originating summons filed on the 13 January 1989, claimed against the first respondent, the Honourable the Minister Paul Pora, an order quashing such assessment and that assessment of duty on the share transfer documents calculated in accordance with Div 9, Item 16 of the Schedule to the Act, (dealing with transfers of marketable securities) be substituted. Further that the contract for sale be assessed under Item 6 of the schedule at K6.00 each and the sublease transfers under Item 15 at K6.00 each.

The applicant claimed in effect, a refund from the second respondent of the difference between the sum actually paid and that lesser sum which the applicant claims, (by virtue of such substituted assessments which it seeks), is its proper liability. The question in issue then, is whether duty should be assessed on the total consideration for the transfer of shares as if such agreement for sale falls within the terms of s 46 (as "real property") and is thus assessable at 5%, or as argued by the applicant, the rate of 1% as provided for by Division 9 (dealing with transfers of marketable securities).

Before dealing with the question I wish to turn back to the originating summons, where the applicant sought, pursuant to s 21 of the Stamp Duties Act orders of this Court. This section provides for appeals against assessment.

Section 21 -

21 (1) [Appeal] Where, in relation to an objection under Section 20A, a person is disatisfied with the decision on the objection, he may, within 60 days of the date of service of the notice under Section 20A(2) -

(a) appeal to the National Court against the assessment; and

(b) for that purpose require the Collector of Stamp Duties to state and sign a case setting out the basis of the assessment.

21 (2) [Collector to state case] When required to do so under Subsection (1), the Collector of Stamp Duties shall state and sign a case accordingly and deliver it to the appellant.

21 (3) [Set down for hearing] On the application of the appellant, the appeal shall be set down for hearing.

21 (4) [Collector to be notified] As soon as the appeal is set down for hearing, the appellants shall give notice of that fact to the Collector of Stamp Duties.

21 (5) [Determination] On the hearing of the appeal, the National Court shall -

(a) determine the questions at issue; and

(b) assess the duty and penalty (if any) that the Court considers to be chargeable.

Subsections (1), (2) & (4) reproduced above had been amended by Act 26/88 operative 1 January 1988, so that these proceedings have been incorrectly entitled in the name of the Minister who had, (by the amendment) been replaced by the Collector of Stamp Duties, as the appropriate respondent. The State is not properly joined in these circumstances, the Collector having been named in the Act as the appropriate authority. Nevertheless I propose to deal with the proceedings as they stand, directing that such pleadings be read as Collector of Stamp Duties wherever reference is made to Paul Pora or the Minister or for that matter the State. It has been my experience that promulgation of amending legislation leaves a lot to be desired and since the agent for the Collector has not taken the point but filed a case stated on the 26 September 1990, I consider the appropriate order is to grant leave to all parties to dispense with strict compliance with the National Court Rules, so that the issue or question, on appeal, may be heard. The National Court Rules provide in Part 3, O 18 Div 2 - Taxation Appeals rr 15-14 for Taxation Appeals but are silent over appeals in accordance with s 21 of the Stamp Duties Act. In the circumstances a summons for directions, upon lodging an appeal would be appropriate.

This Division 2 may well provide the basis for directions by the Court.

The stated case by the Collector, after reciting the lodgment of documents giving rise to the assessment, asserts that such transfer is "of an interest in property, not on (sic) the transfer of marketable securities". [Case par (5),(6),(7) & (8) -

(5) The Collector of Stamp Duties based his assessment on the transfer of an interest in property, not on the transfer of marketable securities.

(6) The Collector of Stamp Duties relys upon the provisions in the Memorandum and Articles of Association of the company whose shares are the subject of the transfer.

(7) The Collector of Stamp Duties relys upon the fact that the company conducts no business other than to hold one parcel of land developed as multi-storey residential units, the entitlement to each of which is attached to a specific parcel of shares.

(8) In no strata little system in Papua New Guinea and the only means for transfer of multi-storey real property is by way of entitlement to ownership and possession by ownership of a specific parcel of shares.

I propose then, to treat the applicants summons as an appeal sufficient for the purposes of the statute, under s 21 and the respondents case as that set out in the Collectors document.

The appellants grounds, then shall be those pleaded in the originating summons, whereby he says the Collector erred in law in relying on s 46 when, on the factual situation which is agreed, assessment should have been arrived at by treating the documents on their face, as transfers of "marketable securities" under Div 9.

Miss Weigall, the Collectors agent who had the leave of the Court to appear in this instance, argued that the purchase of such shares gave the purchaser an indefinitely continuing right to reside in the premises and thus had the effect of transferring an interest in property. She said that such an absolute right to exclusive possession, whilst a shareholder, was an incident which could be categorised as an interest in property, and that category was caught by s 46(1) of the Act.

Section 46 -

46(1) [Definition] For the purposes of this section, "agreement" includes an instrument that has the effect of -

(a) vesting an any person a right to a transfer on sale of real property; or

(b) conferring on any person an indefinitely continue right to occupy any real property.

She says that the Agreement for Sale of Shares is thus within the definition of s 46(1)(b).

But nowhere in the instrument itself does it confer or have the effect of conferring an indefinitely continuing right to occupy any real property. That right is provided for in the articles of association of the target company, it is not conferred by the Agreement. The operative part of the agreement relates to the sale of shares and deals with all necessary incidental matters in that regard to effectuate such transfer.

No authority has been advanced to support her assertion that the agreement effectively transfers an interest in property. I cannot agree with her. "A share confers on the holder no legal or equitable interest in the assets of the company; it is a separate piece of property". [per Dixon C.J., Kitto J. and Taylor JJ; Charles v. Federal Commissioner of Taxation (H.C. of A) [1954] HCA 16; (1953-54) 90 CLR 598 @ 609) nowhere can the owner of a share for instance, demand that the company transfer to him an indefeasible title to a particular unit. It is just not possible. Were it so, such a transfer would, on its face, be such an instrument envisaged by s 46(1) in one form or another. What Miss Weigall seems to be arguing disregards the ordinary laws of property, for the betterment of the Collector. Section 46(1) in my view, cannot catch, as it were, a share transfer and give it an entirely different cloak. It is the articles of association which determines the legal and equitable rights of the share holder thus conferred by share ownership, not the agreement submitted by the Investment Corporation for stamping. Pleading that agreement, in equity, in these Courts cannot afford a plaintiff any help, were he to seek orders conferring on him an interest in land to the extent of an indefinitely continuing right to occupy a particular unit. Firstly the land or property cannot be subdivided in such a manner as envisaged, for instance by strata titles legislation so as to provide an identifiable portion, and secondly as I have said the share of the property company does not confer a right on such shareholder to call for a transfer to him of a particular part of the assets of the company (Charles Case). Thus Miss Weigall's assertion that the predominate purpose of the agreement and associated documents is to transfer an interest in real property has no basis in law.

Mr Anderson says that the transfer of shares clearly falls within s 1(1) as a transfer of a marketable security and clearly on the documents face this is what they are. They accordingly attract duty at the rate of 1% of the consideration in the sum of K20,445.60.

Again he says that the transfer of the various leases are governed by schedule 1-(15)(a) and points to the Share Sale Agreement as evidence of the consideration for the transfer being not money, but entry into the Share Sale Agreement. I am satisfied, then under schedule 1(15)(a) the proper duty is K6.00 per transfer totalling K18.00. So the three Agreements for Sale, under seal, should either bear the total duty of K20,456.60 or as suggested by the applicant, (since the transfer of share documents may properly be stamped with that amount) attract duty at the rate of K6.00 each, a total of K18.00. The total duty payable is K20,49.60 made up of the foregoing.

The phrase "has the effect of" relates to the instrument. It is not apposite to say a change in the beneficial ownership of the land results from the instrument, for those reasons I have already stated. Similarly, the instrument does not confer on any person an indefinitely continuing right to occupy real property.

To do away with the anomaly relating to the different rates of duty caused by the effect of the law relating to company share holdings (Charles v. Federal Commissioner of Taxation supra:) coupled with the effect of land law in precluding a suit for specific performance which may lie in other circumstances, in a purchaser seeking to enforce the change of beneficial ownership of land pursuant to a contract for sale, special legislation was passed by the New South Wales Parliament, as recently as 1987. The Stamp Duties (Amendment) subjected instruments effecting the sale or transfer of shares in a company title dwelling to duty at the conveyance rate. The amending bill clearly referred to the previous advantage, company title unit purchasers had, over other land purchasers, more particularly strata title unit purchasers, by virtue of the lower share transfer duty rate.

But as I say strata titles legislation is unknown in Papua New Guinea. Stamp Duties legislation cannot be used as it is sought to be used in this instance, to alter the substantive law, as it affects landownership or share transfers.

If the legislature considers that the anomaly warrants legislative correction then it may seek to pass amending legislation, affecting the Stamp Duties Act, legislation which varies the incidents of duty on sale or transfer of shares in a company title dwelling. There is no need to delve into the convoluted nature of Division 30 of the New South Wales Amending Act dealing with acquisitions of company and unit trust interests duitable as conveyances of land, but such amending Division is directed at varying the incidence of duty in these circumstances. It does not affect relationship created by instruments between parties. It does specifically deal with the situation where there is acquisition by a person of a land use entitlement attaching to a particular share. i.e. the company title situation. In other words, legislative correction was necessary to vary the incidence of duty on the transfer of company title share holdings.

In this case it seems the Collector is seeking this Courts assistance in deeming what is clearly not an instrument conferring an interest in real property as such an instrument for the purposes of Section 46(1) of the Stamp Duties Act.

That is clearly incorrect. I rely on the natural words of the section.

Nowhere is there any deeming provision to support the Collectors wish. Mr Anderson further says that as a taxing statute, the burden of proof is on the respondents to show that such duty as assessed is lawful. For the foregoing, I am not satisfied the burden has been discharged.

I accordingly make the following orders -

(a) that the assessment of the first respondent be quashed.

(b) that the following assessment be substituted in lieu of the assessment of the first respondent:-

(i) the share transfers shall be assessed as transfers of "marketable securities" under Division 9 of the Act and Item 16 of the Schedule to the Act at 1% of the consideration of the sale of the shares being an amount of Twenty thousand four hundred and fifty six Kina sixty toea (K20,456.60);

(ii) the agreements for the sale of shares shall be assessed under Item 6 of the Schedule of the Act at K6.00 each;

(iii) the transfers of the subleases shall be assessed under Item 15 of the schedule at K6.00 each.

(c) the stamp duty levied under the assessment of this Honourable Court shall be discharged from the moneys paid by the applicant to the first respondent pursuant to the assessment of the first respondent.

(d) the second respondent shall pay to the applicant the sum of eighty one thousand seven hundred and twenty one Kina sixty toea K81,721.60) and interest thereon from the date of payment by the applicant to the first respondent of the stamp duty assessed by the first respondent.

(e) the second respondent shall pay the appellant's costs of and incidental to this application.

I give liberty to apply.

_____________________________________________________________

Lawyer for Applicant: Gadens Ridgeway
Lawyer for Respondent: Customs Office