Austree Enterprises Pty Ltd v Shiyao Guo [2012] SBHC 21; HCSI-CC 381 of 2011 (2 March 2012)

IN THE HIGH COURT OF SOLOMON ISLANDS
(Mwanesalua J)

Civil Case No. 381 of 2011

BETWEEN:

AUSTREE ENTERPRISES PTY LTD
(AC 127935004, a company registered in Victoria, Australia)
First Claimant

AND:

ZONG WU ZHOU
Second Claimant

AND:

LIN YUN ZHOU
Third Claimant

AND:

SHIYAO GUO
First Defendant

AND:

CHINA UNITED (SI) CORPORATION
Second Defendant

AND:

RAY CHU
Third Defendant

AND:

JUNBIN GUO
Fourth Defendant

AND:

JUNZONG GUO
Fifth Defendant

Date of Hearing : 7 December 2011
Date of Ruling : 2 March 2012

R Kingmele for the Claimants
W K Togamae for the First Defendant
G Suri for the Second Defendant
M Pitakaka for the Third, Fourth and Fifth Defendants

RULING

Mwanesalua J:

1. This is an application for dismissal of proceeding, as amended, under rule 9.75 (a)-(b) of the Solomon Islands Courts (Civil Procedure) Rules 2007 ("the Rules"). The application was filed by the Second Defendant on 27 October 2011 for the following orders:
   
   1. An order that the Claimant's whole proceeding in this claim be dismissed pursuant to rule 9.75 (a)-(b) the Rules in so far as the proceeding is premised upon the purported Agreement dated 30 August 2007, and the variation thereof, that:
      
      • (a) are prohibited from being pleaded or admitted in evidence by section 9 as read with section 3 of the stamp duties Act [Cap. 126]. The said Agreement and variation thereof are, therefore, invalid and unenforceable in law.
        
      • (b) contravened section 12 (3) and 15 (1) of the Foreign Investment Act 2005. The said Agreement and the variation thereof, are therefore invalid and unenforceable in law.
        
   2. Consequently upon grant of order 1 sought, the Applicant seeks an order declaring that the First, Third, Fourth and Fifth Defendants have the right to manage and control the Second Defendant company, and the Town Ground Project.
      
   3. Further and consequent upon grant of Order 1 sought, the Applicant seeks an order that the First, Second and Third Claimants deliver to the Second Defendant, through its directors, named herein as the First, Third, Fourth and Fifth Defendants the following items:
      
      • (i) all locks and keys to all apartments, offices, rooms in and gates to the building built at Town Ground;
        
      • (ii) financial and administrative records of the Second Defendant currently in the possession or control of the Claimants, their servants or agents;
        
      • (iii) assets, including equipment, machines, tools and vehicle, in the possession or control of the Claimants, their servants or agents.
        
   4. Further and other orders as the court deems meet;
      
   5. Costs of the whole proceeding be paid by the Claimants.
      
2. The claim which the Second Defendant seeks to strike out was filed on 23 September 2011. In that claim, the Claimants seek, among other relief, "I. Specific performance of an agreement in writing between the Second Claimant and the First Defendant dated 30 August 2007 as varied by oral agreement between the Third Claimant and First Defendant dated 20 November 2007 for the transfer by the First Defendant of 90% of the issued shares held in the Second Defendant to the Claimants;
   
3. That Agreement, among other thing, shows that the Second Claimant and the First Defendant agreed to incorporate a company in Australia. Its share capital and scope of business to be contained in its document of incorporation. After incorporation the company would purchase all the shares which the First Defendant own in China United Corporation (SI) Ltd ("CUSI") for 1USD. At that time the First Defendant represented that he held all shares in CUSI. That the company to be incorporated will have investment of around RMB30 million; a total share capital of RMB15 million; the Second Claimant to hold 76% of shares by paying RMB10,050,000.00 and that the First Defendant to hold 33% of the shares by paying RMB4,950,000.00.
   
4. On October 2007, that proposed company was incorporated in Australia. It is called Austree Enterprises PTY LTD (Aus), (the First Claimant in this case). On 20 November 2007, the Third Claimant acting as the agent of the First Claimant and the First Defendant made a verbal Agreement to vary the Agreement of 30 August 2007, in that variation First Claimant is to hold 90% and the First Defendant to hold 10% of the shares in CUSI.
   
5. On 21 November 2007, the First Defendant being the General Manager of UCSI sent a letter to the Registrar of Foreign Investment that the shareholding in UCSI had been changed, with the First Claimant holding 90% and the First Defendant 10% of the shares in CUSI. A certificate of registration No. 573 was accordingly issued to the First Claimant pursuant to section 21 of the Foreign Investment Act 2005 under Regulation 7 on 4 December 2007, containing among other things, the investment activities of the First Claimant.
   
6. The Claimants opposed this application. They contend that the Agreement between the Second Claimant and First Defendant dated 30 August 2007 ("the Agreement") has now been stamped. It is therefore admissible as evidence in the proceedings as it had been "stamped in accordance with the law in force at the time it was first executed". It is further contended by the Claimants that the law in force at the time the Agreement was executed can be answered by reading sections 3, 9 and 20 of the Stamp Duties Act [Cap. 126] together. And that the proper construction of the prohibition contained in section 9 must be read subject to section 20, that is to say, that the Agreement can still be pleaded or given in evidence or admitted to be good, useful or available in law or equity if it has been stamped in accordance with section 20.
   
7. Section 3, 9 and 20 of the Stamp Duties Act [Cap. 126] are in the following terms;
   

"3 (1) Subject to the exemptions contained in the schedule thereto, there shall be raised, collected and paid to a collector upon and in respect of the several documents specified in the said schedule, the several duties in such schedule, the said duties being denoted by affixing Solomon Islands adhesive stamps to, or impressing a die approved by the Chief Collector of Stamp Duties upon, the said documents.

(2) It shall be lawful for the Minister by order from time to time to add to, alter or amend the duties payable under the Act and such addition, alteration or amendment shall be deemed to be embodied in this Act.

(3) It shall be lawful for the Minister to exempt any document or class or description of documents from the duties payable under this Act and such exemption shall be deemed to be embodied by this Act.

9. 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.

20. If any document, required by this Act to be stamped, is not duly stamped within two months of execution thereof, it shall only be stamped upon payment to a collector of the following penalty, that is to say a penalty of ten centum or ten dollars, whichever is greater if stamped within two months of the execution thereof, or if not stamped within two months of the execution thereof, a penalty of twenty-five per centum of the duty payable or ten dollars whichever is the greater for each period of three months that the duty remains unpaid after the expiration of the said period of three months".

8. A copy of the Agreement was produced to the court[1]. It was dated 28 October 2011. The Stamp duty paid on that document was $200.00. The solicitor for the Claimants submits that this sum includes stamp duty and part of penalties in accordance with section 20 of the Stamp Duties Act. But Counsel for the Defendants submits that no penalty was paid, and, further insufficient stamp duty was paid on the Agreement.
   
9. I accept Counsel for the Defendants' submission that section 9 of the Solomon Islands Stamp Duties Act set out above is in mandatory terms, like section 19 of the Papua New Guinea Stamp Duties Act (Chap. 117). In a Papua New Guinea case,[2] court said:
   

"S.19 of the Stamp Duties Act (Chap. 117) prohibits in clear and mandatory language the pleading, reliance of a party and admission into evidence an instrument or a document liable to stamp duty but it has not met the requirement. At the same time, the Act provides that, on the payment of the appropriate amount of stamp duty and penalty assessments, the court may accept the document as evidence".

10. Counsel for the Defendants this application has calculated the appropriate stamp duty payable for the investment amount of RMB30 million, share capital of RMB15 million and 67% share at RMB10,050,000.00 @ 3.75% in relation to the First Claimant all amounted about USD161,825.00. Further, Defendants' Counsel pointed out that there is no evidence to show that the Claimants have paid the penalty for the period from 3 August 2007 to 30 August 2011 duly required to be paid under section 20 of the Stamp Duties Act, before the contract can be pleaded, given in evidence or admitted in the claim by the Claimants.
    
11. Counsel for the Claimants says that the Foreign Investment Act of 2005 was brought into force after the Agreement was first executed on 30 August 2007. That is to say on 19 October 2007 Counsel for the Claimant submitted that that Act is therefore irrelevant for purposes of this application. But he did not deal with the status of the Agreement after it was varied on 20 November 2007 and the First was registered as Foreign Investor on 4 December 2007. Other Counsels were silent on this point as well. The point has not been fully argued before the court. I say no more about it. This court will thus deal with application on the basis of the Stamp Duties Act (126).
    

The view of this court is that the Claimants failed to pay appropriate duties and penalties under section 20 of the Stamp Duties Act. In the circumstances, the Agreement as varied cannot be pleaded, given in evidence and admitted in this case.

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.
    
13. Orders of the court;
    
    1. The Agreement as varied cannot be plead, given in evidence or admitted as evidence;
       
    2. The portions of the proceeding based on the Agreement are struck out.
       
    3. Grant order 1 sought in the application.
       
    4. Refuse to make declarations sought in paragraphs 2 and 3 of the application.
       
    5. The Claimants to pay the Defendants costs of this application.
       
    6. Claim to be mentioned on 23 March 2012 at 1.30pm.
       

THE COURT

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^[1] Sworn statement of Eddie Sifoni filed on 3 November 2011 Exh. “ET-1”
^[2] Spirit Haus Ltd v Marshall [2004] PNGC 166; NZ630 (2 September 2004)