Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW)
100 CLR 3921958 - 0509B - HCA
(Judgment by: Dixon CJ)
Between: Davis Investments Pty Ltd
And: Commissioner of Stamp Duties (NSW)
Judges:
Dixon CJMcTiernan J
Webb J
Kitto J
Taylor J
Subject References:
Corporations
Share transfer
Consideration
Taxation and Revenue
Legislative References:
Stamp Duties Act 1920 (NSW) - s 41; s 66
Judgment date: 9 May 1958
SYDNEY
Judgment by:
Dixon CJ
The facts upon which this difficult case really turns may be reduced to a very brief statement indeed. The appellant, Davis Investments Pty Ltd , having become solely entitled to the shares in D. Davis & Co Pty Ltd proceeds to obtain transfers of certain of its valuable assets including fifty-seven shares in three other companies. There are no creditors who could complain of the transaction. It is therefore immaterial to the parties, except for purposes of the revenue laws of State or Commonwealth, for what consideration the assets are transferred to the holding company, that is Davis Investments Pty Ltd , by the company whose issued share capital it holds, that is by D. Davis & Co Pty Ltd By an agreement that is drawn up and executed by the respective companies the transaction is expressed as a sale and purchase of the shares in the other companies at prices which are in fact par, that is to say at PD1 each. But the value of the fifty-seven shares is not PD57: it is PD54,382. By the transfer of the shares the holding company (Davis Investments Pty Ltd ) gained no accession of wealth: for the value of the shares which it held in the other company (D. Davis & Co Pty Ltd ) dropped correspondingly; that is to say, their value decreased by PD54,382 less PD57, or PD54,325.
What the transfer meant to the holding company was a change of the form of property containing this value. That is to say, by the transfers that company would become the immediate owner of the shares which theretofore were the property of the company whose share capital it held. The latter company (D. Davis & Co Pty Ltd ) of course parted with the ownership and so depleted the value of its assets. But as it did so to its only shareholder it thereby satisfied the potential demand of its shareholders upon its assets, demands that under the company law were exercisable or capable of effectuation by securing either the declaration of a dividend or dividends or a reduction of capital or a winding-up. There is nothing to suggest that the transfer of the shares at par worked an unauthorized reduction of capital of D. Davis & Co Pty Ltd : so presumably the same result might have been obtained by a distribution in specie by way of dividend or by way of reduction of capital (see Ex parte Westburn Sugar Refineries Ltd) [F1] or in a winding-up.
The question in the case is what, in the foregoing circumstances, is the consideration for the transfers for the purpose of stamp duty under the Stamp Duties Act 1920-1949 (N.S.W.). The unencumbered value of the shares is fixed at PD54,382. If the transfers when executed in pursuance of the agreement would be made upon a bona fide consideration in money or money's worth of less than the unencumbered value of the property transferred, then s. 66 (3A) operates to impose a stamp duty at ad valorem rates calculated as that sub-section prescribes. The excess of the unencumbered value, over the consideration is taxed at three and one-half per cent. If the consideration is the price of PD57 the result is that a duty becomes payable of PD1,902 10s. 6d. If however the consideration, properly understood, is equal to the value of the shares transferred, namely PD54,382, then the duty, so it appears, would work out at only PD135 19s. 6d. For the rate of duty when the consideration is equal to the full value is comparatively low.
The stamp duty to be ascertained is that which would be payable on the transfers, although it is the stamping of the agreement and not the transfers which is in question. For s. 41 (1) provides that every agreement for the sale or conveyance of any property in New South Wales shall be charged with the same ad valorem duty to be paid by the purchaser or person to whom the property is agreed to be conveyed as if it were a conveyance of the property agreed to be sold or conveyed and shall be stamped accordingly. The words conveyance and convey cover transfer and that is true whether the property is real or personal: see ss. 65 and 3, "property". The result is that the stamp duty on the agreement is governed by the duty which would be payable upon the transfers, were they the instruments to be stamped. For that reason the inquiry must be whether the consideration for the transfers if and when executed would be what is nominated in the agreement as the price or would be the full value.
Neither the nature nor the effect of the transaction is open to much question. The matter is really one of "characterisation". Must the price be characterised as the consideration or is it proper to characterise the further elements in the transaction which determine or govern its real effect the consideration? Assuming, as I think we should, that the transfer of the shares would not deprive the transferor company of assets representing paid-up share capital, the shares to be transferred must contain, in point of value, either accumulated trading profits or some accretion to capital over and above the equivalent of the paid-up share capital of the company. Such a "fund", whether real or notional, would be "distributable". In any case to sell and transfer these shares to the only shareholder of the company at a price which must amount to a nominal or book price effects a "distribution" of the trading or capital profit contained in or represented by the shares. It places in the shareholder's hands the trading or capital profit contained in or represented by the shares. It may be described in the terms employed in business or accountancy as a liberation or a distribution of or a transformation of title to the "fund" of profits. Doubtless it is not accomplished by a means provided by the company law, but if there is no interest involved but that of the shareholder, that is Davis Investments Pty Ltd , no legal interest is invaded, and there is no one who is entitled to complain.
In the present case the detailed facts suggest that the agreement for the transfers to the shareholder, Davis Investments Pty Ltd , of the assets constituted by the shares, formed part of a wider plan for the re-allocation of interests. But into these facts I shall not enter because I think the case should be confined to the essential elements upon which the determination or ascertainment of the consideration must depend. The facts appear in the judgment of Kitto J. in whose very clear and precise analysis of the case I concur down almost to the final step. I see no reason to doubt that the substance of the matter was to "liberate" surplus assets of the company to its shareholder by transfers of the shares forming the assets at a nominal price. I treat it as clear enough that this was done because the sole shareholder (Davis Investments Pty Ltd ) was entitled to cause it to be done. It appears to me to be clear enough too that the sole shareholder was able to cause it to be done in virtue of the rights attaching to the position occupied by a sole shareholder. Moreover the transfers, while changing the title to the assets consisting of the shares in other companies would not otherwise better or worsen the position of the sole shareholder, Davis Investments Pty Ltd Pro tanto the rights given by the shares thus held would be "effectuated", "realised", "fulfilled" "satisfied", or "exhausted".
The choice of expression does not matter: what matters is that a fasciculus or congeries of rights in personam existed in the hands of Davis Investments Pty Ltd as sole shareholder in the exercise of which it proceeded to reduce into its ownership and possession the shares transferred, at the expense of a precisely corresponding loss of value in the shares embodying the rights so exercised. I do not recede at all from what I said in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (N.S.W.). [F2] But there we dealt with a transfer made wholly in pursuance of a resolution and order for the reduction of capital. The resolution and order formed a method of effectuating the rights of shareholders. Under the resolution and order it became the duty of the company to distribute to the shareholders in specie the assets consisting in shares in other companies. There was no consideration, no transaction, except this. But the shares were to be distributed "at the value thereof appearing in the books of the company" and those values were only seventy per cent of the true values. We decided for reasons to which I adhere that the "consideration" was the full value of the assets because no more was done than to satisfy the absolute right of the shareholders arising from the resolution and order. But in this case there is a final problem. It is true that in the present case the shareholder, Davis Investments Pty Ltd , is able to obtain the contemplated transfers in virtue of the rights which shareholding gives. It is true that pro tanto those rights will be satisfied or exhausted by the transfers. But the transaction was thrown by the parties into the form of a sale at a price. In such a case how does the expression "conveyance (transfer) made upon a bona fide consideration in money or money's worth" apply?
No doubt, when a transfer or other assurance of property is expressed to be made for a nominal consideration, for many purposes it is open to prove a further consideration not being inconsistent with the nominal consideration expressed therein. And this may be so although there is no mention of the real consideration. Cf. Clifford v Turrell; [F3] affirmed. [F4]
But here, for their own purposes the parties have given the transaction the form of a sale at a price. Had it not been for the situation occupied by the two companies one to another it might not have been possible, or at all events lawful, to transfer at such prices. In a practical sense doubtless the transaction was "moved" by that circumstance. But within the meaning of the words in s. 66 (3A) would the consideration moving the transfers-the consideration "upon" which the transfers are made-be anything but the price the parties chose to adopt? After all we are dealing with a transfer on sale. To go beyond the price may be to prefer realism to formal expression, but it means going to the circumstances warranting the parties in fixing the price they chose and that is not necessarily the same thing as consideration. It cannot be denied that it is an attractive view that the consideration in money or money's worth "upon" which the transfers would be made consists of all the essential elements involved in the change of rights effected by the transfers, involving as it does the effectuation of pre-existing rights. But, notwithstanding some hesitation, I have reached the conclusion that, in the circumstances of the present case, it is the price which must for the purposes of stamp duty be regarded as the consideration upon which the transfers would be made.
I think that the transaction is not in itself a fulfilment or satisfaction of the rights of the shareholder as such. It is to be explained, indeed it is to be justified, by the existence of such rights or in other words by the legal situation which a sole shareholder occupies, but nevertheless the actual transaction is not one for which the law-the company law-provides for the effectuation of the rights and duties subsisting between shareholders and a company or for the effectuation of the property or personal rights of the shareholders in respect of the company. It is a transaction of purchase and sale. That is a form into which it was thrown because, doubtless, it was best calculated to achieve the ends of those in control. But considered as a transfer on sale it is a transfer for a price. The price is fixed by the parties for the sale, that is for the transfer. It is not supplied by the surrounding or accompanying circumstances, however essential the elements discoverable therein may be to the legal and economic efficacy of the transaction as a whole. In the end it is for that reason that the consideration must be confined to the price for the purpose of ascertaining the ad valorem stamp duty. The case is by no means an easy one but in my opinion the only consideration for the purpose of s. 66 (3A) is the price of PD57.
It follows that I think the appeal should be dismissed.