Clifford Development Pte Ltd v Commissioner of Stamp Duties

• Jurisdiction: Singapore
• Judgment Date: 06 October 2008
• Date: 06 October 2008
• Docket Number: Originating Summons No 405 of 2008
• Court: High Court (Singapore)

Clifford Development Pte Ltd

Plaintiff

and

Commissioner of Stamp Duties

Defendant

[2008] SGHC 168

Chan Seng Onn J

Originating Summons No 405 of 2008

High Court

Revenue Law–Stamp duties–Exemptions–Instruments liable to ad valoremduty–Whether “reconstruction agreement” exempt from stamp duty–Section 15 (1) (a) Stamp Duties Act (Cap 312, 2006 Rev Ed)–Rule 3 Stamp Duties (Relief from Stamp Duty upon Reconstruction or Amalgamation of Companies) Rules (Cap 312, R 3, 2002 Rev Ed)

Clifford Development Pte Ltd (“the applicant”) transferred its shares to one Overseas Union Enterprise Limited (“OUE”), thereafter becoming a wholly owned subsidiary of the latter. The Commissioner of Stamp Duties (“the respondent”) was subsequently notified, inter alia, that OUE was entering into a “scheme of reconstruction” and that the applicant might invite a joint venture partner to participate in redevelopment of properties. UOE had by this time already intended to invite one United Overseas Land Limited (“UOL”) to be a joint venture partner and a joint venture agreement (“JVA”) was indeed eventually entered into by UOE and UOL (“the parties”) and the applicant. A reconstruction agreement was subsequently entered into by the applicant and OUE concerning the transfer of the undertaking of several properties. UOL also acquired a 50% shareholding in the applicant pursuant to the terms of the JVA but a deadlock between the parties resulted in UOE later acquiring UOL's shareholding, thereby wholly owning the applicant again.

The applicant submitted that the transfer of undertaking of the properties, ie, the reconstruction agreement, was exempt from stamp duty pursuant to s 15 (1) (a)of the Stamp Duties Act (Cap 312, 2006 Rev Ed) (the “Act”) which provided for stamp duty relief in respect of a scheme for the reconstruction of any company. The respondent denied the application for stamp duty relief on the ground that the reconstruction agreement was not made for the purpose of nor was it in connection with the scheme of reconstruction of the OUE Group, thereby rendering s 15 (1) (a) of the Act and the Stamp Duties (Relief from Stamp Duty upon Reconstruction or Amalgamation of Companies) Rules (“Reconstruction Rules”) (Cap 312, R 3, 2002 Rev Ed) inapplicable. The applicant appealed against the respondent's decision.

Held, dismissing the appeal:

(1) The application for stamp duty relief on the ground that the reconstruction agreement was in respect of a scheme of reconstruction failed in limine because no such reconstruction scheme existed on the facts. Instead a joint venture scheme had been effected: at [58], [29], [53], [54] and [57].

(2) It was a pertinent fact that the JVA preceded the reconstruction agreement instead of the other way round, as the JVA later proved to be the basis for the required transfer of the properties under the reconstruction agreement. Furthermore, the execution of the reconstruction agreement had been envisaged by the JVA. The respondent in determining eligibility for stamp duty relief was required to enquire into the background circumstances and the wider context surrounding the reconstruction agreement. It was consequently artificial for the applicant to argue that there was no detraction from the reconstruction simply because UOL had divested all its shareholdings in the applicant to UOE. That UOE subsequently became the sole shareholder was a mere happenstance resulting from a deadlock. It could not be ignored that from the outset, OUE and UOL had intended to enter into the JVA and the execution of the instrument was an important and necessary step pursuant to the JVA. The real reason behind the instrument was thus to allow UOL to participate in the joint venture and not to effect the purported reconstruction of the OUE group: at [30] to [32], [34] to [37], [47]and [75].

(3) The reconstruction agreement for which relief was sought was an integral and inseparable part of the parties' whole joint venture scheme. Assessing the joint venture scheme as a whole, the reconstruction agreement could not be understood by commercial men as being a “reconstruction” in the commercial sense and was hence not “in respect of” any scheme of reconstruction. It was imperative in deciding whether or not the instrument was “in respect of” a reconstruction scheme to consider the resultant effect of the JVA by which UOE and UOL agreed to use the applicant as their joint venture vehicle: at [75]to [80].

(4) While the Act did not define “reconstruction” for the purpose of exemption under s 15 (1) (a), nor was there local case law furnishing guidance on how s 15 (1) (a) ought to be applied, UK case law supported the notion that the word “reconstruction” has a commercial meaning. Accordingly whether a reconstruction existed meant that it had to be ascertained whether substantially the same persons were carrying on the same business before and after the whole series of transactions were completed to effect the entire scheme. It was reiterated that for stamp duty relief to apply, a reconstruction in the general commercial sense had to exist and simply falling within the prescribed conditions in r 3 of the Reconstruction Rules (which allowed stamp duty relief) without more, did not suffice: at [50], [51] and [81].

Baytrust Holdings Ltd v Inland Revenue Commissioners [1971] 1 WLR 1333; [1971] 3 All ER 76 (refd)

Brooklands Selangor Holdings Ltd v Inland Revenue Comrs [1970] 1 WLR 429; [1970] 2 All ER 76 (folld)

Crane Fruehauf Ltd v Inland Revenue Commissioners [1975] 1 All ER 429; [1975] STC 51 (refd)

Fallon v Fellows [2001] STC 1409 (refd)

South Africa Supply and Cold Storage Company, In re [1904] 2 Ch 268 (folld)

Swithland Investments Ltd v IRC [1990] STC 448 (refd)

WM Cory & Son Ltd v Inland Revenue Commissioners [1964] 1 WLR 1332, CA (refd)

WM Cory & Son Ltd v Inland Revenue Commissioners [1965] AC 1088, HL (refd)

Income Tax Act (Cap134,2008Rev Ed)ss 23 (4),23 (7),37 (12),37 (14)

Stamp Duties Act (Cap 312, 2006 Rev Ed)s 15 (1) (a) (consd);ss 5 (1),5 (2), 11,15 (1) (b),15 (3) (b),33A (1),33A (2),33A (3),39A (5),40 (1),40 (2)

Stamp Duties (Relief from Stamp Duty upon Reconstruction or Amalgamation of Companies) Rules (Cap 312, R 3, 2002Rev Ed)r 3 (consd);rr 2 (2),7

Stamp Duties (Relief from Stamp Duty upon Transfer of Assets between Associated Companies) Rules (Cap 312, R 2, 2002Rev Ed)rr 3, 4,6 (1) (a)

Finance Act 1927 (c 10) (UK)s 55 (1)

Leung Yew Kwong and Tan Shao Tong (WongPartnership LLP) for the applicant

Liu Hern Kuan and Quek Hui Ling (IRAS) for the respondent.

Chan Seng Onn J

Introduction

1 Clifford Development Pte Ltd (the “applicant”) submitted to the Commissioner of Stamp Duties (the “respondent”) an application for relief from stamp duties pursuant to s 15 (1) (a) of the Stamp Duties Act (Cap 312, 2006 Rev Ed) (the “Act”). Section 15 (1) (a) provides relief fromad valorem stamp duty chargeable on the “Conveyance, Assignment or Transfer on sale of any immovable property or any interest thereof” under Art 3 (a) in the First Schedule to the Act on instruments made for the purposes of or in connection with:

1. (a) the transfer of the undertaking or shares in respect of a scheme for the reconstruction of any company or companies, or the amalgamation of companies; [emphasis added]

2 The respondent denied the application for stamp duty relief in respect of a reconstruction agreement dated 11 May 2006 (“reconstruction agreement” or “instrument”) made between the applicant and Overseas Union Enterprise Limited (“OUE”) for the transfer of the undertaking concerning Overseas Union House at 50 Collyer Quay (an 8-storey office/carpark and restaurant complex) and the Change Alley Aerial Plaza at 60A Collyer Quay (a shopping ramp of 44 shops and a tower building), hereafter collectively referred to as “the properties” representing all of OUE's Central Business District investment properties, from OUE to the applicant. The respondent considered that the transfer was not made for the purposes of or in connection with the scheme of reconstruction of the OUE Group so as to qualify the instrument for exemption from stamp duty under s 15 (1) (a) of the Act and the Stamp Duties (Relief from Stamp Duty upon Reconstruction or Amalgamation of Companies) Rules (“Reconstruction Rules”).

3 Dissatisfied with the respondent's decision to disallow the applicant's objection, the applicant appealed and required that a case be stated by the respondent for the opinion of the High Court pursuant to s 40 (1) of the Act. I heard the matter and decided that the applicant was not entitled to the stamp duty relief claimed. I now give my reasons.

Background and the chronology of events

4 The applicant, a private limited company incorporated in Singapore on 3 October 1990, was a dormant company since incorporation with no assets. Its two shares held by Singapore Mandarin International Hotels Pte Ltd were subsequently transferred to OUE, a company listed on the Singapore Exchange. The applicant then became a wholly owned subsidiary directly under OUE.

5 By way of a letter dated 4 January 2006, PricewaterhouseCoopers Services Pte Ltd wrote to the respondent on behalf of OUE stating, inter alia, that:

(a) OUE was entering into a scheme of reconstruction to restructure its business operations.

(b) OUE planned to transfer its undertakings comprising the business and the properties to the applicant, its wholly owned subsidiary.

(c) The properties would be transferred based on third party valuation at market value.

(d) At least 90% of the consideration for the acquisition by the applicant would be satisfied by the issue of ordinary shares in the applicant to OUE. (This would accordingly satisfy the requirement in r 3 (b) (i) of the Reconstruction Rules. (See [24] below.))

(e) OUE would undertake that it would not cease to be the beneficial owners of the shares in the...