N4374

PAPUA NEW GUINEA
IN THE NATIONAL COURT OF JUSTICE

CIA. NO. 167 OF 2010

BETWEEN:

HOWARD CHEN and
LIANG ZUOMING and
ZHENG WEITING

V

BETTY PALASO

Waigani: Sawong, J.
2011: 02 June & 18th of August

COMMERCIAL LAW – Stamp Duties – Duty payable on Trust Deed –s.61 of Stamp Duties Act, Ch. 117

COMMERCIAL LAW – Stamp duties – deeds of Settlement or gifts – whether Trust Deed is deed of settlement – appropriate duty payable. 

Facts: 

The existing shareholders of a company created a Trust Deed under which they transferred 50% of their shares worth K1.5 million to two new shareholders. However this transfers where to be held in trust for the new shareholders. No consideration was paid by the new shareholders. The Trust Deed was subsequently sent to the stamp duties office for stamp duty with an application for nominal stamp duty. The Commissioner General of the Internal Revenue Commission reviewed the duty together with penalty and assessed the dutiable to K155, 732.88. The Appellants paid the duty under protest. The Appellants appealed to the Commission for further reassessment but this was rejected. 

The Appellants then appealed to the National Court against the assessment. 

Held:

(1)	A trust deed is a deed of settlement within the meaning of s. 61(1) of the Stamp Duties Act and is dutiable.

(2)	The appropriate duty is under item 14 of schedule 1 of the Act.

 (3) There was no error on the assessment made by the Internal Revenue Commission. 

(4) Appeal Dismissed. 

Case Cited:
Papua New Guinea Cases

Investment Corporation of Papua New Guinea v. Paul Pora & The State [1993] PNGLR 45. 

Overseas Cases

Commissioner for Stamp Duties (Queensland) v. Hopkins [1945] 71 CLR 351

Counsels:

F. Griffin, for the Appellant 
K. Maken, for the Respondents

18th August, 2011

1.	SAWONG, J: The Appellant's challenge an assessment of duty made by the Commissioner General in respect of a certain instrument namely, a Deed of Trust, entered into between the first appellants as Trustees and the second and third Appellants as beneficiaries of certain shares in a company called Mamosa Investment Ltd (the company). It is the Appellants contention that while the document is stampable or dutiable at a nominal rate, they are not liable to pay more duty as the commissioner has assessed it. 

2.	The matter comes before this court by way of appeal under s. 21 of the Stamp Duties Act. Ch. 117. The appellants have paid the duty assessed under protest. The essential facts backgrounding this appeal are not in dispute. 

3.	On 22 May 2009, the Appellant had signed and entered into a Deed of Trust for the First Appellant to hold in trust shares in the company for and on behalf of the Second and Third Appellant ("the Deed").

4.	On 25 February 2010, under cover of letter dated 24 February 2010 from Young & William Lawyers, the Appellants lodged the Deed with the stamp duty officer with an application for impressed stamp duty. 

5.	On 26 March 2010, the Respondent informed the Appellants (by letter dated 9th March 2010) that she had "reassessed" the stamp duty pursuant to section 13A as duty payable under Item 14 (Deed of Settlement) at the amount of K155, 732.88).

6.	On 9 April 2010, the Appellants lodged their objection against the assessment pursuant to section 20A of the Act. 

7.	In their objection, the Appellants also paid K155, 732.88 as payment of duty and in conformity with the assessment, to the Internal Revenue Commission pursuant to section 20A(1).

8.	On 23 September 2010, the Respondent, by letter dated 21 September 2010, informed the Appellants that their objection had been considered and have been rejected in full. 

9.	On 22 October 2010, the Appellants dissatisfied with the decision of the Respondent of 21 September 2010, filed the appeal herein to the National Court pursuant to section 21 (1) of the Act. 

10.	The grounds of Appeal as pleaded in the Notice of Appeal are:

(a)	The decision of the Respondent made on 21st September 2010 to reject in full the Appellants' Objection dated 9th April 2010 is unlawful and amounts to an error of law in that the Assessment dated 9 March 2010 was made under the wrong and incorrect Duty under item 14 when the nature of the instrument was not in the nature of a Deed of Settlement and that the Deed of Trust the Appellants seek to impressed duty for does not relate to "property" as defined under section 1 (1) and 61 (b) of the Stamp duties Act. 

(b)	The Appellants' Deed of Trust was required to have been assessed and charged duty under item 6 ("Deeds of Agreements under Seal") of schedule 1 of the Stamp Duties Act, which assessment should have been assed as "Nil", and the duplicates of the Appellants' instruments should have been assessed and charged duty under item 7 of the Stamp Duty Act, which provides for Duplicates and Replicas of Instruments. 

11.	There is no issue that duty was payable on the instrument. In this case the Commissioner General treated the Deed as a Deed of Settlement under s.61 of the Stamp Duties Act and assessed the stamp duty payable at K75, 000.00 plus penalty of K75, 000 and interest with a total figure of K155, 732.88.

12.	 The Stamp Duties Act (the Act) requires certain instruments to be stamped. It also sets out, inter alia, the assessments to be made and paid on those instruments. It is not necessary to go into any greater detail on the various types of instrument and how the various assessments could be made on those for stamp duty purposes. 

13.	However, for the present purpose the relevant provision is Division 7, which relates to Deed of Settlement and Deed of Gifts. This division contains ss 59 and s. 61 inclusive. Section 59 of the Act provides for stamp duty to be paid on deed of settlements and gifts. 

14.	Turning now to s.61, it defines what is a deed of settlement or a deed of gift. It reads: 

"61 (1) For the purpose of this Act, an instrument, whether revocable or not, and whether made voluntarily or for good or valuable consideration (other than for a bona fide adequate pecuniary consideration), by which-

(a)	The property is settled or agreed to be settled; or 

(b)	The person executing the instrument is to hold in trust, for a person mentioned in the instrument, property vested in himself otherwise than by way of a religious, charitable or educational trust, or

(c)	A trust, created orally, is acknowledged, evidenced or recorded by the creator of the trust or by the trustee, where duty would have been chargeable by the virtue of this section had the trust been originally created by instrument,

(1)	For the purposes of this Act, but subject to Subsection (4)-

(a)	An instrument by which property is – 

(i)	Given or agreed to be given; or 

(ii)	Directed to be given or to be allotted; or 

(iii)	Transferred or agreed to be transferred, 

Otherwise than for a valuable consideration not less in amount or value than the value of the property, is deed of gift; and 

(b)	The value of the gift is the value of the property or, where there is valuable consideration, the amount by which the value of the property exceeds the amount or value of the consideration.

(2)	The liability of an instrument of stamp duty as a deed of gift does not affect the liability of the instrument to stamp duty as a transfer on sale of real property, or otherwise, based on the amount or value of the consideration. 

(3)	268 269 Where the Collector of Stamp Duties is satisfied that the amount or value of the consideration expressed in the instrument referred to in Subsection. 

(2)-

(a)	was agreed to as representing the true market value for the property given or agreed to be given, directed to be given or to be allotted, or transferred or agreed to be transferred, by the instrument; and 

(b)	is not less than 50% of the value of the property, the instrument shall not be deemed to be a deed of gift for the purpose of this Act, and for the purposes of assessing stamp duty on it every direct or indirect reference in Schedule 1 to the amount or value of consideration in relation to the assessment of duty shall be deemed to be a reference to the value of the property. 

15.	The rate of duty to be paid for a deed of settlement or a gift is set out in item 14 of schedule 1 of the Act. It reads. 

"Where the value of the property in relation to which an instrument is a deed of settlement 

Exceeds K25, 000.00 but does not exceed K50, 000.00	10, 00-------- an amount equal to 2 per cent of the value of the property whichever is the greatest.	
Exceeds K50, 000.00 but does not exceed K100, 000.00	An amount to 3 percent for the value of the property	
Exceeds K100, 000.00	An amount equal to 5 percent to the value of the property. 	

Duty is payable by the settler 

Exemptions – 

(1)	Wills 

(2)	Instruments made before and in consideration of marriage. 

(3)	Deed of settlement so far as they relate to property situated outside the country. 

(4)	Instrument by which property is settled or agreed to be settled on corporations or bodies of persons associated for religious or charitable purposes, so far as the instruments relate to any such settlements, gifts or agreements.

16.	The expression "property" is defined in s.1 of the Act. It reads:

"property includes personal property and any estate or interest in any property, real or personnel, and any debt and anything in action and includes good will, franchises and intellectual property".

17.	The expression "trust deed" is not defined in the Act nor in the Interpretation Act, ch No. 2.

18.	The expression "deed of gift" and "deed of settlement" are defined in the Act, by s. 61. 

19.	It is clear that s. 61 relates to two different types of instruments. Section 61 (1) relates to deeds of settlement, and s. 61(2) relates to deeds of gifts. As the issue and the arguments before me related to whether the instrument, the subject of this case is a deed of settlement, or not, it is not necessary to consider s. 61(2). In other words the parties did not argue or raise the issue of whether the instrument was a deed of gift. I therefore propose to consider s. 61(1) of the Act only. 

20.	Section 61 (1) of the Act defines what kind or kinds of instrument is to be regarded as a deed of settlement. These instruments are described in s. 61(1)(a), (b) & (c) of the Act. 

21.	The first type of an instrument, whether revocable or not, and whether made voluntarily or for good or valuable consideration by which property is settled or to be settled. See s. 61(1)(a).

22.	The second type is "an instrument, whether revocable or not, and whether made voluntarily or for good or valuable consideration by which, the person executing the instrument, properly vested in himself otherwise than by way of a religious, charitable or educational trust, s.61 (1)(b).

23.	The final type, is an instrument, whether revocable or not and whether made voluntarily or for good or valuable consideration by which a trust, created orally, is acknowledged, evidenced or recorded by the creator of the trust or by the trustee, where duty would have been chargeable by virtue of this section have the trust been originally created by instrument. 

24.	The expression "deed of settlement" is not defined in the Act nor in the Interpretation Act Ch. No. 2. I have not been able to final any PNG authorities directly on this point. However, there are authorities in other common law jurisdictions which are helpful and are of persuasive value. 

25.	Counsel for the respondent has referred me to the Australian High Court decision in Commissioner for Stamp duties (Qld) v. Hopkins [1945] 71 CLR 351. The brief facts (from the head notes) are as follows. A document expressed to be an indenture stated, inter alia, that the person therein named as the settler intended to transfer certain shares and money as loan to a company to a person named in the document as trustee, to be held by the trustee upon certain trusts to the intent that the settlement truly made should be irrevocable. The document was executed by the trustee in Queensland on 18 May 1907 and by the settlor in London in September 1907. The shares and money were transferred to the trustee on 22 May 1907. The document was kept in England by the settler until his death in 1919 and was brought to Queensland by the trustee in 1920.

26.	The court by a majority, held that the document was a settlement within the meaning of the Stamp Duties Act 1894 and was dutiable as such.

27.	After stating the facts of the case and discussing other legal principles, Rich, J said at p.367: 

"In order that a documentary may constitute a settlement, it is essential (subject to any artificial meaning which may be attributed to any word by statute) that it should at least operate or contribute to cause property in the sense of some right or interest of a propriety nature to become, either at law or in equity, vested in some person or devoted to some charitable purpose……..it is plain, on the face of the document, so far as the shares and the debt themselves are concerned, that what the settler intended to do is to transfer them in the very near future to Spenser Hopkins are trustee on the terms that offer the intended transfer has taken place he is to hold them upon the trust specified…."

28.	In Oil Search Limited and others v. Commissioner General of Internal Revenue Commission, (unreported and Unnumbered Judgment delivered on 27/04/2001, is of some assistance in a limited way. In that case the principal appellant and it's subsidiaries challenged an assessment of duty made by the Commissioner General in respect of certain security documents. The essential facts were that the Commissioner General assessed valorem duty on a Security Trust Deed between the principal Appellant and its subsidiaries and UBS Australia Limited as Security Trustee for the financing of the acquisition of British Petroleum Assets for consideration of the acquisition of British Petroleum Assets for consideration of United States dollar, 370 million (US #370m). A stamp duty assessment of K765, 256.36 was issued to the appellants by the Stamp Duties Officers. The appellants paid the duty assessed under protest. In addition to the Security Trust Deed, there were four other security documents executed by the subsidiaries of Oil Search Limited. Having paid the duty under protest, the appellants appealed to the National Court on a case stated and challenged the duty assessed. The issue was whether the assessment made by the stamp duties office was proper or not. In discussing the issue the Court said at p7:-

"There can be no doubt that the Court when determining the nature of or the liability of a document for duty, is not restricted to what is disclosed on the face of the document itself, but may look to the substance of the transaction that the document cover:

"a question whether an instrument is duly stamped, or as to what stamp duty is required, is in general determined by what appears on the face of it to be its legal operations when first executed so as to be capable of that operation, but the Court is not bound by the apparent tenor of the instrument and will decide according to real nature of the transaction, receiving, if necessary extrinsic evidence." 
(Halsberry 2nd Ed Para 955)."

Accordingly, in determining whether an assessment made by the stamp duties office is correct or not, the Court is entitled to consider the nature of the document. 

29.	In Investment Corporation of Papua New Guinea v. Paul Pora and the State [1993] PNGLR 45. Brown, J dealt with the issue of whether a share conferred legal or equitable interest in the assets of the company. He held that a share confers upon the holder no legal or equitable interest in the assets of the company and that it was a separate piece of property. 

30.	The short facts of that case (from the head notes) are as follows. The applicant, a company, purchased share capital of Sunset Apartments consisting of several units. The article of association of Sunset Apartments Pty Ltd, the company that owned sunset Apartments, provided that ownership of particular unit in the building with the right to sub lease. The applicant executed contracts with the various vendors to purchase the whole of the share capital of the company Sunset Apartments Pty Ltd. The share sale agreement was nominated as the principal instrument for assessment of stamp duty. 

31.	Transfers were stamped with ad valorem duty and the contract for sale for shares were assessed for duty under s.46 of the Stamp Duties Act as an interest in property at a rate of 5% of the consideration. The applicant paid under protest and subsequently appealed against that decision to the National Court. The issue before the National Court was 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 Div.9 (dealing with transfer of marketable securities). In that case, Brown, J held inter alia, that a share is a separate property in a company and that an agreement or contract for sale of shares falls within s.1(1) as a transfer of marketable security and, accordingly, attracts duty at the rate of 1% of the total consideration. 

32.	There are three issues to be determined. These are:

1.	Whether the deed should be classified as a deed of settlement under Item 14 of Schedule 1 of the Act 

2.	Whether the deed should be treated as a deed or agreement under seal under item 6 of scheduled 1 of the Act. 

3.	Whether the Deed should be classed as a transfer of marketable securities under Item 16 of schedule 1 of the Act. 

33.	I now turn to consider the three issues. The first issue is whether the Deed is a Deed of Settlement under s. 61(1) of the Act and would attract duty under item 14 of schedule 1 of the Act. In my opinion the consideration of issue 2 & 3 would depend on the answer relating to the first issue.

34.	The appellant submits that the instrument is not a Deed of Settlement under s. 61 (1) and therefore should not attract duty under item 14 of Schedule 1 of the Act. Counsel for the appellant submitted that the assessment made by the Commissioner General is wrong in that the instrument was not a deed of settlement. He submits that the instrument ought not to have been treated as a deed of settlement as the shares transferred and held in trust were not property that could be seen as the assets of the company. It is submitted that the shares were not "property" that could be seen as assets of the company and therefore had to be treated differently and be consistent with the ruling in Investment Corporation of Papua New Guinea. 

35.	The respondent submits that the instrument was properly and correctly classified as a Deed of Settlement or Gift and that the duty assessed was correct. Counsel for the respondent submits, that the Commissioner General did not commit any error in treating the deed as a deed of settlement under s. 61(1) of the Act and assessing the duty under item 14 of Schedule 1 of the Act. It is submitted for the respondent that by looking at the terms of the deed they held in the company for the beneficiaries, worth K1.5 million kina, and therefore the instrument was caught under s. 61(1) of the Act. 

36.	The instrument, the subject of the controversy between the parties, is annexed to the Affidavit of one Karo Lakou on behalf of the respondent. The respondent submits, and I accept that the instrument, namely the Deed of Trust, is a deed of settlement for the following reasons. Firstly the instrument in the first paragraph of the recital states that the two trustee originally held and owned fifty percent (50%) each in the shares in their company "prior to the sale" of 50% of their shares to the shareholders". This indicates to my mind that there was or intended to be a sale of 50% of their shares by the Trustees to the shareholders. 

37.	Then in the second paragraph of the recitals to the instrument it stated that the "shareholders have acquired from the Trustees 50% shares……" This indicates to my mind that the new shareholders have now acquired, whether for valuable consideration or not shares (property) in the company.

38.	Then in the final paragraph of the recitals, it is stated that "the 50% shares acquired by them (shareholders) from the Trustees have not been transferred but are to be held in Trust for them by the Trustee.

39.	Paragraph one (1) of the terms of Trust Deed states that the share that were being transferred were worth K1.5 million kina. 

40.	To my mind the instrument falls within the ambit of s. 61 (1)(a) of the Act. It is an instrument, "whether revocable or not, and whether made voluntarily or for good or valuable consideration by which property is settled or to be settled". It is clear to my mind that the settlers intended to cause property (shares), which the trustees initially owned to become either in law or equity, vested in the beneficiaries. That being the case, in my opinion the instrument was either to settle or to be settled the property, namely shares worth K1.5 million to be held in trust for the beneficiaries without any consideration. In my opinion a careful and considered reading of the instrument demonstrates that the trust deed would fall within the meaning of a "deed of settlement" as defined in s. 61(1) (a) of the Act. Thus it was dutiable under item 14 of schedule 1 of the Act. 

41.	On the face of the instrument it is quite clear to my mind that this document relates to settling of property, namely shares in a company. Shares in a company is property. This is consistent with the decision in Investment Corporation of Papua New Guinea, where Brown, J; said that a share is separate piece of property. The expression "property" as defined in the Act and includes "real & personal property"…….. Shares are as a matter of law property. The term "property" in the Act is not restricted to "real property" but covers all other properties too. To argue that the transfer of shares was not a transfer of property, as put by the appellants is misconceived. 

42.	The appellant's argument that the instrument should not be classified as a Deed of Settlement is clearly wrong in law.
 
43.	Further, I accept the respondent's submission that on face of instrument, 50% of the shareholding in the company was or intended to be "acquired" by the second and third appellants (shareholders) from the first appellants (trustees). This is evident from the use of the expression "acquired" and "sale" in the recitals of the instrument. 

44.	For the reason given, I hold the view that the Deed in this case is a deed of settlement. Consequently, stamp duty was assessable under item 14 of Schedule 1 of the Act. As that was done in this case, I find no error in the assessment and penalty imposed by the respondent.

45.	In view of my reasons and conclusion, I do not consider it necessary to deal with issues (2) and (3).

46.	I make the following orders:

1.	The Appeal is dismissed.

2.	The appellants shall pay the respondent's costs, to be taxed, if not agreed.

__________________________________________________________
Young & Williams: Lawyer for the Appellant 
IRC In-House Lawyers: Lawyer for the Respondent