Austree Enterprises Pty Ltd v Guo [2012] SBCA 19; SICOA CAC 7 of 2012 (2 November 2012)

IN THE SOLOMON ISLANDS COURT OF APPEAL

NATURE OF JURISDICTION: Appeal from Judgment of the High Court Civil Case No. 381 of 2011 of the High Court of Solomon Islands (Mwanesalua J)

COURT FILE NUMBER: Civil Appeal No. 7 of 2012 (On Appeal from High Court Civil Case No: 381/11)

PARTIES:

AUSTREE ENTERPRISES PTY LTD
First Appellant

AND:

ZHONG WU ZHOU
Second Appellant

AND:

SHIYAO GUO
First Respondent

AND:

CHINA UNITED (SI) CORPORATION LTD
Second Respondent

AND:

RAY CHU
Third Respondent

AND:

JUNBIN GUO
Fourth Respondent

AND:

JUNZONG GUO
Fifth Respondent

DATE OF HEARING: 31 October 2012
DATE OF JUDGMENT: 2 November 2012

THE COURT: Williams, JA.
Hansen, JA.
Ward, JA.

ADVOCATES:

Appellant: J. Sullivan QC and Gabriel Suri Appellant

Respondent: Maelyn Bird First Respondent

T. Mathews Second Respondent

M. Pitakaka Third to Fifth Respondent

KEY WORDS: STAMP DUTIES ACT CAP 126. MANDATORY NATURE OF SECTION 9. INTERPRETATION OF CONTRACT.

EX TEMPORE/RESERVED: RESERVED

ALLOWED/DISMISSED: ALLOWED IN PART

PAGES: 1 – 13

JUDGMENT

1. This is an appeal from a decision of Mwanesalua J of 2 March 2012 ruling an agreement dated 30 August 2007 (the agreement) between the 2nd appellant (Zhuo) and the first respondent (Guo) inadmissible because the correct stamp duty had not been paid. Leave to appeal was granted on 22 June 2012.
   
2. In the statement of claim dated 23 September 2011, the appellant seeks, amongst other relief, specific performance of the agreement (we note subsequently significantly amended pleadings have been filed). The statement of defence sets out a number of grounds of defence and there is a many faceted counterclaim.
   
3. In passing we note some, but not all, of the significant difficulties with these proceedings, (although they do not necessarily relate to a Stamp Duty Point):-
   
   • (i) The translation of the original Chinese agreement complies, in the first instance, with s:109 of the Evidence Act 2009. However, the respondents challenge its accuracy. A slightly different translation appears on the High Court file. Further, the certification by the Hong Kong solicitor is inadequate. There is a well-established regime for such matters in Hong Kong. The parties should agree a certified translator to provide an agreed translation before trial.
     
   • (ii) There are clear problems with the translation in that some parts are untranslated and the parties are not identified.
     
   • (iii) The last part of the Chinese original is missing from the Record of Appeal. It does appear to be present on the High Court file.
     
   • (iv) Clause V of the agreement could be interpreted as a requirement for certain things to occur before proceedings are issued. Firstly, negotiation between the parties, secondly, reference to the Chongquing Peoples Court for dispute resolution. There is no evidence this has occurred.
     
   • (v) Further it would appear, to put it at its lowest, that at trial there will be a need to consider and apply in this order:- the agreement; the company law of the PRC; the company law of Australia and the company's articles of limited company; the company law of Solomon Islands and company's articles of limited company. If there is conflict between those implementations is in the above sequential order. It follows that it can be argued quite strongly that the company law of the PRC will take precedence. Certainly in the case of dispute expert evidence would be required as to The Company Law of the PRC and Australia.
     

ANALYSIS OF THE AGREEMENT

4. For the purposes of the appeal only, we are prepared to accept the translation as accurate.
   
5. Firstly, Guo guaranteed to Zhou that both the Project Cooperation Agreement and some associated approval documents allowing for the duty free import of construction materials were lawful.
   
6. Secondly, the costs of the completion of the rugby stadium portion of the development would not exceed 5 million RMB.
   
7. Thirdly, that Guo bears responsibility to Zhou for losses occasioned if the documents at para [5] were not lawful or if the cost of completion of the rugby stadium exceeds 5 million RMB.
   
8. Fourthly, the parties agree to finance a company (Austree) to be incorporated in Australia. "That after incorporation Austree will buy all of Guo's shares in China United for AUD1 and will take over the Project-Gap Cooperation Agreement", (Our emphasis). In other words Austree was to be responsible for the completion of the agreement.
   
9. There then follows a minefield of a provision (mentioned para (3) (v) above) dealing with the applicable law.
   
10. Section I follows dealing with issues of governance of Austree. Section II clearly deals with the overall investment in the project by Austree and that company's shareholding. It states that 67% of the shares are to be allotted to Zhou and 33% to Guo.
    
11. For present purposes, the rest of the agreement is irrelevant.
    
12. The claim pleads that Guo represented at the time of the agreement he owned 100% of the shares in China United. It also pleads an oral variation of the agreement on 20 November 2007 between Zhou and the 3rd respondent as agent for Guo. This was to the effect that Guo would only be required to transfer 90% of the shares in China United.
    

THE JUDGMENT

13. The Judge referred to the relevant provisions of the Stamp Duties Act CAP 126, and amendments. He dealt with some matters that could be said to go to the implementation of the agreement, although the only relevant one for present purposes was the incorporation of Austree. It is clear in the judgment that the Judge treated "the Company" to be the company that was ultimately incorporated as Austree.
    
14. He records that on 28 October 2011 the agreement was stamped for $200. We note that in the sworn statement of Eddie Toifai dated 3 November 2011 it is stated that the collector assessed duty as $50 and that sum was paid. In fact, on its face the document was stamped for $200 which can only be $50 plus penalties. We understand that is now accepted by the respondents.
    
15. He then sets out the 1st respondent's counsels assessment of ad valorem duty based on the figures contained in Para 11 of the agreement. At Para 11 of the judgment he obviously concluded that ad valorem duty was payable on the sums set out in Section II of the agreement. He concluded at 12:-
    

"The court holds the view that the Claimants have not duly paid stamp duty and penalty on the Agreement. That is they have not paid them in accordance with the legal requirements of sections 3, 9 and 20 of the Stamp Duties Act (126). The Agreement cannot therefore be pleaded, used as evidence and be admissible as evidence in the claim."

DISCUSSION

16. In our view, the application as it related to the ad valorem issue badly miscarried. It did so because the submissions below, echoed in the submissions before us, failed to rigorously and critically analyse the agreement at the heart of this dispute.
    
17. Under s:2 of the Act a "transfer on sale" includes every document whereby any property, or estate in any property, is transferred to or vested in a purchaser.
    
18. Section 3 provides that subject to exemptions duties shall be paid to the Commissioner in respect of the documents set out in the schedule. It is clear from the judgment, and the respondent's submissions that they maintain this agreement is caught by Para 11 of the schedule. (Stamp Duties (Amendment) Order 2010). It is equally clear only this paragraph could catch the agreement. It reads:-
    

Transfer (other than transfer otherwise specifically charged) of any property whatsoever or of any interest therein, upon the consideration (not being a nominal consideration) or, when there is no or a nominal consideration) or, when there is no or a nominal consideration, upon the amount or value of the property or interest transferred-

(i) where the consideration or amount exceeds

$10,000 but does not exceed $25,000... ... ... 2%

(ii) where the consideration or amount exceed $25,000

but does not exceed $50,000 ... ... 3%

(iii) where the consideration or amount exceeds

$50,000 ... ... 4%

Where the consideration or amount is in respect of the transfer of shares in a limited liability company, the words "$10,000" appearing in paragraph (1) shall be read and construed as if there are substituted for those words the words "$100."

19. The parties' submissions on this issue focus on whether or not the agreement effects a transfer of property. With due respect that is a second step. The first is to ascertain what property is said to be transferred by the agreement. That is clearly all Guo's shares in China United, later varied to 90% of those shares. The consideration for that was AUD1. We do not know whether or not that is a nominal amount, although some of the financial material pleaded on behalf of China United and Guo could suggest that shareholder loans would render the shares close to valueless.
    
20. In any event, we do not consider the agreement effects a transfer of property. In Great Woods Limited v Springhill Limited [2012] SBCA 14, CA – CAC 41 of 2011. (30 March 2012). This Court said:-
    

In our view, although the agreement envisages a transfer of the property in the machinery, the transfer does not occur by virtue of the agreement but by the payment on the one hand and the hand over on the other, with an acknowledgement that by this means the buyer becomes the owner of the machinery. Moreover, the Act imposes duty on instruments and not transactions, as is made clear by s3 of the Act, which refers to the sums payable "in respect of the several documents specified in the ...Schedule... [which duties are] denoted by affixing...adhesive stamps to ... or impressing a die...upon the said documents" (emphasis added), and s 9 deals with the effect on documents of a failure to duly stamp it, not with any effect on transactions; though, of course, if a document is ineffectual, that might have consequences for transactions; thus, the mere fact that a transfer of property occurred does not create a liability to ad valorem duty unless the document effect it."

21. The agreement is essentially an agreement to set up a joint venture company to take over and complete the rugby stadium project. Only on the implementation of a significant number of requirements would Guo be obliged to transfer 90% of China United shares to Zhou. This clearly would be by a transfer of shares that would attract ad valorem duty. Either at AUD1 or some other value given the Collector's powers under s11 and 12. This agreement does not effect a transfer of the shares.
    
22. In any event, we consider the reference to the figures in Part II of the agreement to be a red herring and such reference should never have occurred. (Perhaps an explanation may be the strange pleading at Para 7 of the claim that is completely unrelated to the agreement). As noted the reference to "the company" in the agreement was accepted as a reference to Austree. That is undoubtedly correct. When one reads the agreement China United, where necessary, is specifically referred to. The agreement refers to the agreement to incorporate Austree and then immediately continues that after incorporation the company, (which can only be Austree) will buy the shares in China United and take over the project. The reference in Section II of the agreement to 30 million RMB is a reference to the intended investment. We are at a loss to understand how this could attract ad valorem duty.
    
23. The reference to the amount making up the share capital in Austree relates to an Australian incorporated company. We know of no basis as to why this would attract ad valorem duty in the Solomon Islands. Even if it were a Solomon Islands Company, the duty would be assessed pursuant to para 1 of the Schedule to the Act which is limited to $20,000.
    
24. Mr Mathews valiantly attempted to argue that what was transferred was the project and that the figures in Part II of the agreement related to valuable consideration for such transfer. Further that advising the Companies office of the purported change of shareholding in China United (even if erroneous) effected the transfer of the project. He relied on the words in the agreement:-
    

"Will take over the ......development project entered into between China United Corporation Limited and Solomon Islands Rugby Federation."

For this submission, he further relied on the fact that Guo was responsible for debts up the date of acquisition and Part III allowed for Austree to acquire loans for the project and for Guo to collect rent in advance.

25. This submission is fatally flawed. The "project" arises from a lease between China United and SIRFU. The rights in that agreement remain with China United, as we understood Mr Mathews to eventually accept. There is nothing in the agreement to suggest any assignment or transfer of those rights. (And indeed any such assignment would require the consent of SIRFU).
    
26. It follows, that as a result of the failure to analyse the agreement this application as to ad valorem duty being payable got well off track. The only property in the agreement for possible transfer was the shares in China United for AUD1. This agreement did not effect such transfer. The agreement is properly stamped at $50 plus appropriate penalties.
    
27. The next matter advanced on appeal relates to the mandatory terms of S:9 which reads:-
    

"No document executed in Solomon Islands or relating, wheresoever executed, to any property situate in Solomon Islands or to any matter or thing done or to be done in Solomon Islands, shall, except in criminal proceedings and in civil proceedings by a Collector to recover any duty or penalty under this Act, be pleaded or given in evidence or admitted to be good, useful or available in law or equity unless it is duly stamped in accordance with the law in force at the time when it was first executed."

28. It is clear from the submissions lodged below by Mr Suri that the mandatory nature of S:9 was placed in issue. It does appear that the primary focus was on the ad valorem point and the judge did not directly allude to this submission. He did refer to Spirit Haus Ltd v Marshall [2004] PNGC 166 but there the legislation provided that the court could accept the document once appropriate duty and penalty were paid. Such a provision is common in such legislation in many other jurisdictions but is not present in CAP126.
    
29. As Mr Mathews correctly submitted S:9 is similar to 19th Century English provisions. Such a provision was considered by the High Court of Australia in Dent v Moore (1919) 26 CLR 316. At 324 The Court stated:
    

"But here, acting impersonally on the bargain finally embodied in an 'instrument', and therefore contained nowhere else, it strikes that instrument with sterility (to borrow an expression from another branch of the law) unless and until the public requirement of taxation has been complied with. Until that has happened, the instrument (except in criminal proceedings) is not 'available' and not 'effectual' – that is, it has no effect – for any purpose whatsoever at law or in equity: in other words, it cannot be considered as an instrument giving title, or as one which could be made the means of compelling anyone to give title. It is in the eye of the law a nullity, except for criminal proceedings and, of course, for the purpose of being stamped."

30. In the absence of any saving provision S:9 must be given its mandatory effect. It cannot somehow be read subject at S:20 dealing with the time limit for stamping and penalties for late payments. As well, as was pointed out in Dent, it is not the duty of the court to be astute in finding ways to defeat the object of the Act of the Legislature.
    
31. This latter point is a complete answer to Mr Sullivan's submission that the Amended Further Amended Claim filed with leave on 25 June 2012 was filed after the agreement was stamped. This cannot save the proceeding. The proceeding 381 of 2011 was commenced by the filing of the Form 3 notice and the Statement of Case on 23 September 2011 before the agreement was stamped. S:9 prevented the agreement from being pleaded. Where proceedings in the Solomon Islands are founded on an instrument it must be stamped with the appropriate duty before commencement, of such proceeding.
    
32. However, Mr. Mathews responsibly conceded that the appellant could commence fresh proceedings based on the now stamped agreement. He, and Ms Bird for the 1st respondent and Mr. Pitakaka for the 3rd to 5th respondents, also responsibly accepted that the court should make an order, if possible, that reduced cost and delay. This was a sensible concession.
    
33. It follows that the mandatory provision of S:9 requires us to dismiss the proceeding 381 of 2011.
    

Accordingly we order:-

1. The appeal is allowed to the extent that the Judge's finding that ad valorem duty was payable is quashed.
   
2. That the correct duty and penalty were paid on the agreement of 30 August 2007 on 27 October 2011.
   
3. Proceeding 381 of 2011 is dismissed.
   
4. The court directs that:-
   
   • (i) the Amended Further Amended Claim noted as being filed pursuant to leave granted in 381 of 2011 on 7 June 2012 is deemed to be an originating application and is to be allocated a new 2012 number by the registry.
     
   • (ii) all document in proceedings 381 of 2011, excepting the Originating Application and Statement of Case are deemed to be documents filed in the new proceeding and to have full force and effect in the proceedings, including any orders of the High Court.
     
   • (iii) The appellants are ordered to file any further amended pleading within 14 days. Respondents any amended defence 14 days thereafter.
     
   • (iv) Costs of the appeal to be the parties cost in the cause in the new proceeding.
     

Williams, JA

Hansen, JA

Ward, JA