Investment Corporation of Papua New Guinea v Paul Pora, Minister for Finance and Physical Planning and The Independent State of Papua New Guinea

• Jurisdiction: Papua New Guinea
• Judge: Brown J
• Judgment Date: 04 October 1991
• Citation: [1993] PNGLR 45
• Court: National Court
• Year: 1993
• Judgement Number: N1150

National Court: Brown J

Judgment Delivered: 4 October 1991

PAPUA NEW GUINEA

[NATIONAL COURT OF JUSTICE]

INVESTMENT CORPORATION OF PAPUA NEW GUINEA

V

PAUL PORA, MINISTER FOR FINANCE AND PHYSICAL PLANNING, AND THE INDEPENDENT STATE OF PAPUA NEW GUINEA

Waigani

Brown J

3 April 1991

4 October 1991

TAXATION — Stamp Duties Act — Company title dwelling — Transfer of shares and registered subleases — Purchase of share capital — Share sale agreement nominated principal instrument for stamp duty assessment — Transfer of shares stamped with ad valorem duty — Agreement for sale assessed for duty under s 46 of the Act at 5% of total consideration — Whether duty be assessed on total consideration for transfer of shares as real property or as transfer of marketable securities — Stamp Duties Act Ch 117 s 46, Div 9.

REAL PROPERTY — Company title dwelling — Transfer of shares and registered subleases — Taxation of.

Facts

The applicant, a company, purchased share capital of Sunset Apartments, consisting of 15 residential units. The Articles of Association of Sunset Apartments Pty Ltd, the company that owns Sunset Apartments, provide that ownership of particular shares entitled the owner to exclusive use of a particular unit in the building with the right to sublease. The applicant executed contracts with various vendors to purchase the whole of the share capital of Sunset Apartments Pty Ltd. The share sale agreement was nominated as the principal instrument for assessment of stamp duty.

The transfers were stamped with ad valorem duty and the agreement for sale was assessed for duty under s 46 of the Stamp Duties Act as an interest in property at a rate of 5% of the total consideration. The applicant paid under protest and subsequently appealed from the decision. The question raised 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 transfers of marketable securities).

Held

1. A share confers on the holder no legal or equitable interest in the assets of the company; it is a separate piece of property. Charles v Federal Commissioner of Taxation (1954) 90 CLR 598 at 609. Nowhere can the owner of a share, for instance, demand that the company transfer to him an indefeasible title to a particular unit. Were it so, such a transfer would, on its face, be such an instrument envisaged by s 46 (1).

2. The property cannot be subdivided in a manner envisaged so as to provide an identifiable portion, and the share of the property company does not confer a right on such shareholder to call for a transfer to him of a particular part of the assets of the company. For these reasons, pleading the agreement for sale of shares in equity, in these Courts, cannot afford a plaintiff any help, were he to seek orders conferring on him an interest in land to the extent of an indefinitely continuing right to occupy a particular unit. Thus, there is no basis in law to say that the predominant purpose of the agreement and associated documents is to transfer an interest in real property.

3. The agreement for sale of shares is not an instrument that has the effect of conferring an indefinitely continuing right to occupy any real property. That right is provided for in the Articles of Association and not in the agreement.

4. Section 46 (1) cannot catch a share transfer and give it an entirely different cloak. It is the Articles of Association which determine the legal and equitable rights of the shareholder, thus conferred by share ownership.

5. The phrase "has the effect of" in s 46 (1) relates to the instrument.

6. On the face of the document, the transfer of shares falls within s 1 (1) as a transfer of marketable security and, accordingly, attracts duty at the rate of 1% of the consideration.

Cases Cited

Charles v Federal Commissioner of Taxation (1954) 90 CLR 598.

Counsel

E Andersen, for the applicant.

J Weigall, for the respondent.

4 October 1991

BROWN J: The applicant is a company which purchased the share capital of another company called Sunset Apartments Pty Ltd. This latter company was the proprietor of land registered as State Lease Volume 1 Folio 126 Port Road Granville West Port Moresby upon which had been erected 15 residential apartments, or units. These units were known as Sunset Apartments. The articles of association of Sunset Apartments Pty Ltd provided that ownership of particular shares entitled the owner to exclusive use of a particular unit in the building with a right to sublease. Sunset Apartments may, in common parlance, be called a "company title dwelling". There is no strata title ownership provided for by legislation in Papua New Guinea, and apart from joint ownership, whether as tenants in common or joint tenants, company title affords the principal method for ownership of such high rise or unit blocks.

The applicant on 8 November 1988 executed contracts with various vendors to purchase the whole of the share capital of Sunset Apartments Pty Ltd. Pursuant to that contract, appropriate transfers of shares and transfers of registered subleases were also signed. The share sale agreement was nominated as the principal instrument for stamp duty purposes, and on 15 November 1988, under hand of N Bogan, the Local Assessor of Stamp Duties, an assessment of stamp duty issued. The transfers were stamped with ad valorem duty and the agreement for sale was assessed for duty pursuant to s 46 of the Stamp Duties Act Ch 117 at the rate of 5% of the total consideration, in the sum of K102,286.20. This amount was paid under protest. The agreement for sale was completed on 1 December 1988. On 11 January 1989, the applicant, through its lawyer, by letter, advised the Minister for Finance and Planning (the Minister responsible for administration of the Act) of the applicant's intention to appeal against the assessment and sough that he state a case setting out the basis of the assessment for duty for this Court's consideration and determination.

The applicant, by originating summons filed on 13 January 1989, claimed against the first respondent, the honourable the Minister Paul Pora, an order quashing such assessment and substituting the assessment of duty on the share transfer documents calculated in accordance with Div 9 of the Act and s 16 of the Act, dealing with transfers of marketable securities. Further, the applicant asked that the contract for sale be assessed under s 6 of Schedule 1 at K6.00 each and the sublease transferred under s 15 at K6.00 each.

The applicant claimed, in effect, a refund from the second respondent of the difference between the...