The Commissioner of Stamp Duties v MIM Holdings Ltd
[1999] QCA 390
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- Unreported Judgment
- Appeal Determined (QCA)
- The Commissioner of Stamp Duties v MIM Holdings Ltd[1999] QCA 390
- Add to List
The Commissioner of Stamp Duties v MIM Holdings Ltd[1999] QCA 390
Reported at [2001] 1 Qd R 294
The Commissioner of Stamp Duties v MIM Holdings Ltd[1999] QCA 390
Reported at [2001] 1 Qd R 294
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 578 of 1999
Brisbane
[Commissioner of Stamp Duties v MIM Holdings Ltd]
BETWEEN:
THE COMMISSIONER OF STAMP DUTIES
(Respondent)Appellant
AND:
MIM HOLDINGS LTD ACN 009 814 019
(Applicant)Respondent
McMurdo P
Derrington J
Chesterman J
Judgment delivered 17 September 1999
Separate reasons for judgment of each member of the Court; each concurring as to the orders made
APPEAL AND CROSS-APPEAL DISMISSED WITH COSTS
CATCHWORDS: TAXES AND DUTIES – STAMP DUTIES – WHAT TRANSACTIONS OR INSTRUMENTS ARE LIABLE – GENERALLY – QUEENSLAND – interpretation of “prescribed provisions” of Stamp Act (s 56FA to s 56FO) – respondent acquired 51% of shares in “land-rich” company – respondent entitled to ordinary voting rights, to participate in declared dividends, but not to receive surplus in winding up – whether respondent acquired “majority interest in a corporation” as defined in s 56FN – whether respondent acquired an interest by “variation, abrogation or alteration of a right pertaining to any share” as defined in s 56FA – whether company was “corporation” to which “prescribed provisions” apply – whether contractual rights part of company’s realty or separate property – whether unpaid premiums on shares “property” for purposes of “prescribed provisions”
CORPORATIONS – CORPORATE FINANCE – SHARES – articles of association conferred on shareholder right to participate in winding-up of company upon payment of call – whether payment effected variation to rights conferred by respondent’s shares – whether uncalled premiums on shares “property”
INTEREST – RATE OF INTEREST – whether trial judge erred in exercise of discretion pursuant to s 30(1)(d) Judicial Review Act
Danubian Sugar Factories Ltd v Commissioners of Inland Revenue [1901] 1 KB 245
EIE Ocean BV v Commissioner of Stamp Duties [1998] 1 Qd R 36
House of Fraser Plc v ACGE Investments Ltd [1987] AC 387
In Re Saltdean Estate Co [1968] 1 WLR 1844
In the Estate of McClure (1947) 48 SR NSW 93
McCaughey v Commissioner of Stamp Duties (1945) 46 SR NSW 192
National Provincial Bank Limited v Ainsworth [1965] AC 1175
Potter v Commissioners of Inland Revenue [1854] 156 ER 392
Re Vedelago [1993] 2 Qd R 110
Smith Kline and French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73
Spencer v The Commonwealth (1907) 5 CLR 418
Thakral Fidelity Pty Ltd v The Commissioner of Stamp Duties (CA 9180/97, 10 September 1999); [1999] QCA 367
Judicial Review Act 1991, s 30(1)(d)
Stamp Act 1894, s 22A, s 24, and s 56FA to s 56FO
Supreme Court Act 1995, s 47
Counsel: Mr R V Hanson QC and Mr P J Flanagan for the appellant
Mr D Jackson QC and Mr F L Harrison QC for the respondent
Solicitors: Crown Solicitor for the appellant
Blake Dawson Waldron for the respondent
Hearing Date: 9 August 1999
- McMURDO P: I agree with the orders proposed by Chesterman J and with his reasons.
- DERRINGTON J: I have had the opportunity of reading the reasons for judgment of Chesterman J and have the misfortune to be in some disagreement with him on certain features, thought not as to the result. Since he has stated the relevant circumstances and issues fully and clearly, there is no need for repetition.
Acquisition of Majority Interest by Acquisition of Shareholding with Specified Rights by Virtue of Alteration of Rights Pertaining to a Share
- The first issue is whether there has been an “alteration of a right pertaining to any share”. Without doubt, there was no alteration of any terms of the articles defining the bundle of rights pertaining to shares, but this does not mean that there was not an alteration to a right pertaining to certain shares as a result of an existing provision of the articles permitting the alteration.[1] The statute does not, either expressly or by implication, limit its definition to any alteration of the articles’ terms which define rights. Nor does it speak of alteration of the shareholder’s totality of rights as a whole. It speaks simply of alteration to a right pertaining to a share, and this should be given its ordinary literal meaning.
- A right to participate in any distribution of capital is a right pertaining to a share. Immediately prior to the payment of the relevant call the taxpayer had no such right pertaining to its shares, merely a right to obtain that right by the payment of the relevant call. When the call was paid, the shareholder then had the right pertaining to the share to participate in a distribution of capital where it had had no such right before. Although it is not a necessary feature to establish that this amounted to an alteration, the taxpayer’s payment of a substantial sum to acquire the right emphasises that there was indeed an alteration of the right from merely potential to actual.
- This new right was no less the result of an alteration because the alteration was achieved through other rights also pertaining to the shares. This is why it does not matter that the articles were not amended to change the rights to effect it. For example, if the articles provided that a share of a certain class would carry no voting rights, but that if a payment were made, it would carry full voting rights, it would be contrary to ordinary usage to say that a right pertaining to it had not been altered. It would not be to the point of that simple enquiry whether the articles provided the mechanism for the alteration.
- Rights pertaining to the shares may be regarded on two levels. The first is of the substantive kind, such as the right to participate in a distribution of capital. The other is of the kind that permits or operates to affect an acquisition of new rights or and alteration of existing rights. The latter are only triggers for change, and the fact that substantive rights are altered through such other rights does not mean that they are not altered. It merely means that they can be altered by this in-built method without altering the articles. In this context it would be wrong to confuse the rights which are altered with the rights which are the means of their alteration or the articles which control the process of alteration.
- In some contexts it may be appropriate to construe a reference to rights pertaining to the shares as an amalgam so that an alteration to some rights in accordance with an internal provision allowing for it may not involve an alteration to the totality of rights.
- On one view,[2] it might be said that the change here was the fulfilment of the original right, but this is predicated on an approach that addresses the shareholder’s totality of rights as a whole and not the particular rights that might be altered in the fulfilment of other rights. That fulfilment can still lead to the alteration of rights pertaining to the shares if the matter is construed without any such contextual distortion and with the simple enquiry whether there has been any alteration to them. This avoids any contextual colouring of the question, which is why the simple literal approach is important here.[3]
- The issue here is not directed to a total overall result for the relevant definition of the term “acquire” in s 56FA includes “to acquire an interest by virtue of ... the ... alteration of a right pertaining to any share ...”. It looks at a right pertaining to a share. It does not depend upon any need to refer to the general body of rights pertaining to the shares as a whole. On an ordinary literal construction, an alteration to a right pertaining to a share by these means is still an alteration of a right pertaining to a share.
- That in this case there was such an alteration appears in a way from the argument of the respondent itself that when it acquired the shares in the first instance, it did not also acquire the relevant right that would have immediately rendered the transaction exigible for duty. Its argument necessarily involves the proposition that the original transaction could not be read in conjunction with the later position as to those rights, for that was the result of a later and separate transaction. This predicates that the later position involved an alteration in the rights pertaining to the shares, for if that had not been so, the transaction would have been exigible in the first instance.
- Little assistance is to be drawn from the general context of the Act, for the same conflicting arguments can be equally applied to the comparable definitions such as are contained in ss 56B(1)(d) and 56C(1)(d). However, the point to which the legislation is directed in each case in referring to the acquisition of a prescribed interest does not depend upon whether the alteration of any interest is the result of a further transaction or whether it is the result of the exercise of another right or interest within the original transaction. There is no apparent reason why such a distinction should be read into the plain words used in the legislation.
- The effect of this is that the reference to the alteration of the rights relating to participation in the definition of “acquire” in s 56FA of the Act is met whenever the rights are altered and it does not detract from this that the alteration is permitted by the articles without any alteration to them. Consequently, this point should be resolved in favour of the Commissioner.
- However, there is another distinct issue within the overall question. The point of this enquiry is not whether by an alteration of a right pertaining to a share the party acquired a right to participate in the distribution of capital, but whether it acquired a shareholding that entitled it to do so in a way that amounted to a majority interest in the company. The acquisition of an interest in the company is defined to be the acquisition of a shareholding entitling participation in a distribution of the company’s property, and the acquisition of a majority interest is the acquisition of a shareholding that would entitle participation in the distribution to a greater extent than fifty per cent of the property distributed.
- While the right pertaining to the shares that was altered amounted to an acquisition of that right in respect of an existing shareholding, it did not amount to an acquisition of a shareholding with the right. It is true that the shareholding was altered in a way by the acquisition of such new rights attached to it, but since the shares were already held and the rights were acquired in respect of those shares, it could not be said that there was an acquisition of a shareholding having the rights. The position may well have been different if the provisions of s 56FN(1) and (2) referred to the acquisition of an interest as a shareholder to participate in a distribution rather than acquiring a shareholding that would do so.
- Though it be by a different path, on this question as a whole I have arrived at the same conclusion as Chesterman J, that is, that there was not, by an alteration of rights pertaining to shares, an acquisition of a shareholding amounting to a majority interest in the way defined. This is conclusive as to the result, and the appeal must be dismissed. It is however convenient to refer briefly to other issues though they are now redundant.
A Corporation to which the Prescribed Provisions Apply
- While the company’s bundle of rights to use neighbouring lands to facilitate mining on its own land may aptly be described as property, and in some respects as separate property, as with an easement of right of way it has no separate value apart from the land. The rights are all merely ancillary to its use. But this, and conversely, the enhancement of the value of the company’s own land by the greater availability of its resources, does not mean that the property they represent does not have its own value in the hands of the landowner if it were considered theoretically as a separate asset.
- However this approach in the present exercise, while logical, would if pursued lead to absurd consequences and it is not appropriate here. The concept in this legislation and its purpose must be considered as a whole when having regard to its parts. It is simply the comparison of the value of the land with the total value of the company’s assets that must be made in order to meet the prescribed test. In this there is no justification in valuing the land as if the company did not possess the additional rights that enhanced its value, that is, to give it a value less than it actually has.
- With respect, the learned trial judge was right to look at the enhanced value having regard to the way the land could be mined because the respondent had other rights that permitted, for example, a far larger quantity of ore to be extracted from it than was extractable without the rights. Just as it would be artificial to say that those rights were worthless without the land, so too in this exercise it would be artificial to value the land as if the rights did not exist. When the value of the land is to be compared with the company’s total assets, there is just no reason in logic or in substance why its enhanced value to the company should not be adopted.
- It is irrelevant to this process that, if valued separately, the facilitative rights that were valueless without the land were worth a certain figure because they elevated the value or the land by that amount.[4] Their value does not come into the comparison, which is limited to the value of the land and the total value of all assets. For the purpose prescribed, the value of the land is virtually the same as the value of the land and the rights. But that is no reason why its value should be reduced by a deduction of the value of the rights. That value is to be assessed only on the basis that the land in fact enjoys this enhancement of its value.
- By analogy, if the value of land is dramatically increased by its acquisition of a small but essential easement, it cannot be said that the land has only its original value and that the value of the easement is the difference between the before and after values of the land. If one were to compare the after value of the land with the value of the entirety, they would usually be virtually equal and it would be contrary to the point of the exercise to use the original value that would no longer be valid.
- I would agree with the learned trial judge that the Prescribed Provisions apply to this company.
Uncalled Subscription for Shares
- The views of Chesterman J on this point are very persuasive. The right to receive a payment of money for use in its enterprise, contingent only on its making a call on the shares, is a valuable right of the respondent. It is a legal obligation of the shareholder to the company. It could well in time provide it with substantial actual working capital which it will not be obliged to repay.[5] It will be in the nature of a payment of the company’s own money, deferred only until it is needed for that purpose.
- As Chesterman J says, if the appeal turned on this point, it would need to be remitted for valuation of the asset. In this case, it is unlikely that it would have a minimal value as in the case where a call might never have to be genuinely made, for the progress of the enterprise into production that would justify calls seems to be reasonably assured. However the extent of the likely calls and the degree of discounting for chance would have required assessment in order to give present actual value to the asset.
Interest
- I agree with the conclusion of Chesterman J on this point, and with his reasons.
Orders
- I agree with the orders proposed by Chesterman J.
- CHESTERMAN J: On 19 April, 1993 the respondent, Mount Isa Mines Ltd (“MIM”), Savage Resources Limited (“Resources”) and Savage Exploration Pty Ltd (“Exploration”) entered into an agreement whereby MIM irrevocably granted Resources an option to require MIM (by itself or its nominee) to subscribe for 237,043 A class shares in Exploration in accordance with that company’s articles of association. The agreement was amended by further agreements dated 26 July, 1993, 24 September, 1993 and 9 October, 1993. The option could be exercised only upon the occurrence of described circumstances which have come to pass. The consideration for the allotment of shares was (i) the sum of $75,000,405.00 payable on account of the full par value of, and part of the premium payable on, the shares and (ii) a further amount of $78,060,630.00 on account of premium uncalled but payable as and when calls were made in accordance with the articles.
Resources has exercised the option whereupon MIM nominated the respondent to subscribe for the shares.
Exploration, which was a wholly owned subsidiary of Resources, has changed its name to Ernest Henry Mining Pty Ltd (“EHM”).
MIM nominated the respondent to subscribe for the shares in EHM.
By the agreement MIM also irrevocably granted Resources an option to require it or its nominee to acquire from Resources so many of the issued ordinary shares in EHM as, immediately prior to the subscription for shares earlier referred to, constituted five per cent of the issued capital of EHM. The price was $5,000,000.00.
- The agreement was completed on 9 October, 1993. On that day EHM issued 237,043 shares in its capital to the respondent on the terms set out in schedule 4 to its articles of association. The respondent paid for the shares in EHM it acquired from Resources ($5,000,000.00) and the first of the two amounts payable to EHM for the allotment of the A class shares. As a result of the transfer and allotment of shares the respondent owned fifty-one per cent of the issued capital of EHM.
The issued shares had a par value of $1.00 each but were issued at a premium of $644.71 per share. The sum of $75,000,405.20 equates to a premium of $315.40 per share for the 237,043 shares subscribed for. The balance was payable on call.
A call was in fact made on 29 October, 1993 pursuant to which, on 8 November, 1993 the respondent paid a further sum of $714,000.00 which had the effect of making the amount paid up on each of the allotted shares more than $318.00.
- Schedule 4 to EHM’s articles of association is headed “Terms of Issue” and provided:
- “(1)Any Shares issued at a premium any portion of which is unpaid at the time of issue are issued on the terms and conditions set out in this Schedule.
...
- (4)Until an aggregate amount of at least $318.00 on account of capital and premium has been paid on each of the Shares (including amounts paid at the time of issue), the Shares shall not carry any entitlements to participate in a distribution of the property of the Company on a winding up.
- (5)Following the call for and payment of the amount described in paragraph (4) in accordance with these terms of issue and the Articles, the Shares shall entitle the holder to participate in any surplus payable on a winding up in the proportion that the amount of capital (but not premium) paid up on the Shares bears to the total amount of capital paid up on issued Shares of the company ...”
- EHM was the owner of Mining Lease 2671 which was rich in gold and copper. The trial judge found it had a value of 134.3 million dollars.
- Sections 56FA-56FO of the Stamp Act 1894 apply to the acquisition of shares in what has come to be known as “land-rich companies” though that term is not found anywhere in the sections. The effect of the statutory provisions was summarised in EIE Ocean BV v. Commissioner of Stamp Duties [1998] 1 Qd R 36 at 41-2 as being:
- section 56FH creates an obligation to prepare and lodge a statement in respect of a relevant acquisition where a person acquires a majority interest in a corporation to which the provisions apply;
- the same section deems that statement to be an instrument executed on the day on which the relevant acquisition occurs;
- section 56FK imposes ad valorem duty on the statement at a rate commensurate with duty on conveyances of real property;
- by section 56FL the provisions apply to corporations whose shares are not listed on a stock exchange and which own land in Queensland worth at least $1,000,000.00 and the total value of such land is at least eighty per cent of the value of all of its property;
- by section 56FM a relevant acquisition is one by which a person acquires a majority interest in a corporation.
- The respondent did not prepare nor lodge a statement of the kind required by section 56FH. It took the view that the provisions did not apply to the acquisition of its shareholding in EHM. The appellant disagreed. He issued a default assessment in the sum of $2,898,772.50 pursuant to section 22A of the Stamp Act. The respondent paid under protest and, pursuant to the Judicial Review Act 1991, sought review of the appellant’s decision by which duty was assessed and the decision to disallow the respondent’s notice of objection to the assessment. The application was supported on the grounds that the decision to assess duty was unlawful because the “land rich provisions” of the Stamp Act did not apply to the respondent’s acquisition of shares and that the assessment was an improper exercise of power and, additionally, involved an error of law. For these reasons it was said the objection should have been allowed. The trial judge agreed. Her Honour allowed the statutory application of review, set aside the appellant’s assessment of stamp duty and declared that he had no power to issue a default assessment in respect of the respondent’s acquisition of shares in EHM.
- The outcome of the appeal, as did the result of the application before the trial judge, depends upon whether the respondent acquired a majority interest in EHM by reason of the events which occurred in October and November 1993.
- Section 56FN(1) provides that for the purposes of the prescribed provisions (ie ss 56FA to 56FO):
“... a person acquires an interest in a corporation if the person ... acquires a shareholding in the corporation that would entitle the person ... (if the corporation were to be wound-up immediately after the shareholding was acquired) to participate (otherwise than as a creditor ... ) in a distribution of the property of the corporation.”
Subsection 2 provides that:
“... a person acquires a majority interest in a corporation if the person ... acquires a shareholding ... that would entitle the person ... if the corporation were to be wound-up immediately after the shareholding was acquired to participate (otherwise than as a creditor ...) in a distribution of the property of the corporation to an extent greater than 50% of the value of the property distributable to the holders of shares in the corporation.”
- Section 56FA contains definitions of terms found in the prescribed provisions. Relevantly, “acquire” is defined:
“in relation to an interest in a corporation to which the prescribed provisions apply, includes, without limiting the generality of the expression, to acquire an interest by virtue of -
- the purchase, gift, allotment or issue of any share ...;
- the redemption, surrender or cancellation of any share;
- the variation, abrogation or alteration of a right pertaining to any share ...”
- It is at once apparent that on completion of the agreement on 9 October, 1993 the respondent, though it became a shareholder of fifty-one per cent of the issued share capital in EHM, did not acquire a majority interest in that company as the term is defined in section 56FN. The respondent’s shareholding entitled it to the ordinary voting rights of a shareholder and to participate in any dividends that may have been declared, but not to receive any part of the surplus in a winding up.
- The appellant argues that the court should resort to ordinary notions of what is meant by “acquiring an interest in a corporation”, and that by reference to such notions the respondent acquired a majority interest, as defined in section 56FN, “after payment of the call when the shares became entitled to participate in a winding up”.
- Alternatively the appellant submits that the definition of “acquire” found in section 56FA(1)(c) applies because by payment of the call the shares became entitled to participate in a return of capital on a winding up. They did not confer such a right prior to the additional payment. The result is that there has been a “variation ... or alteration of a right pertaining to a share” and that the right was of a kind which made the interest acquired a majority one for the purposes of the prescribed provisions.
- It is convenient to deal separately with the arguments.
The respondent acquired its shareholding in EHM by transfer and allotment on 9 October, 1993. The appellant accepts that on that day the respondent did not acquire a majority interest as defined. By no ordinary notion of the meaning of the word did the respondent “acquire” any shares in EHM on 8 November, 1993. It acquired the shares a month earlier. It might be said that by the payment made on 8 November the respondent acquired a right to participate in the distribution of surplus capital on a winding up of EHM but such an acquisition is not within the terms of section 56FN. The subsection, the terms of which I have set out, make it clear that a person acquires an interest in a corporation for the purposes of the prescribed provision if the person acquires a shareholding in the corporation that would, if the corporation were wound up immediately after the acquisition, entitle the person to participate in the winding up. The acquisition of a majority interest has a cognate meaning.
The respondent acquired its shareholding in EHM on 9 October. Had the company been wound up immediately thereafter the respondent would not have been entitled to participate in a distribution of its property. The respondent did not acquire an interest in EHM on 8 November, 1993 by acquiring a shareholding that carried rights to a distribution on a winding up.
- The right to which the respondent became entitled upon payment of the call is not therefore an acquisition to which section 56FN applies.
- For these reasons the appellant’s first argument cannot be accepted. It does not appear to have been addressed to the trial judge.
- The second argument focuses on that part of the definition of “acquire” which speaks of acquiring an interest in a corporation by virtue of the variation or alteration of a right pertaining to any share in the corporation. It is argued that the payment of the amount of the call effected a variation to the rights conferred by the respondent’s shares. Before the additional payment the respondent had no right to participate in a winding up: after the payment it was entitled to share in a distribution of the company’s surplus property on a winding up.
- The trial judge pointed out that the question to be addressed was whether, when the call was answered on 8 November, any variation occurred to rights pertaining to the shares by which the respondent became entitled to participate in a winding up. Her Honour then noted the respondent’s argument that the entitlement to participate in the winding up was conferred by the articles and was inherent in the shares themselves: that the position of the shareholder changed without there being any alteration to rights pertaining to the shares. Her Honour rejected the appellant’s argument that the conditional right to participate in a winding up on the acquisition of the shares became absolute upon paying the further subscription and that the change from a conditional to an unconditional right constituted a variation or alteration of a right pertaining to the shares. The trial judge concluded:
“In my view that is not so. The right inhered in the shares from their issue and was realised by the payment up to the required amount. It did not arise ‘by virtue of’ any variation of any right pertaining to the shares themselves.”
- It may be accepted that after the respondent made the further payment of $714,000.00 there was an alteration in its position as a shareholder. Its shares then being paid up to an amount in excess of $318.00 each, the articles of association allowed the respondent to recover a rateable proportion of the company’s property on a winding up. The right was conferred by the articles upon the satisfaction of a precondition, the terms of which were specified in those articles. The question is whether this alteration in rights which the respondent enjoyed was the alteration of a right “pertaining to any share”. The phrase is significant and limits the class of rights alteration of which is defined to be an acquisition of an interest in a company.
- The respondent’s argument, which the trial judge accepted, was that the alteration pertained to the shareholder, not to the shares which always carried, as part of the “bundle of rights” which defined them, the entitlement to participate in a winding up. The right was suspended, or inchoate, and would not operate until the minimum payment on the shares had been made. But the nature of the rights by which the shares were defined was not altered. The shares always conferred upon the shareholder a right to participate in a winding up in the event that a specified state of affairs came into existence.
- The concepts relevant to the resolution of the appeal are subtle and not altogether easy to express clearly in words. Another way of attempting the task of explaining that the rights which the articles attached to the shares did not change is to say that those rights produced a different result depending upon the circumstances in which they were to take effect. A winding up when the amount paid on the shares was less than $318.00 would produce a different result to that which would follow when the amount paid up was more. But these effects were expressly contemplated by the description of the rights which attached to the shares. Depending on the existence or non-existence of a defined circumstance the shareholder could or could not participate in a return of capital. But the different result for the shareholder did not depend upon a change to the description of the rights which the articles conferred on the shares. It depended upon the change in circumstance. The rights of the shareholder took effect according to the articles which made provision for alternate situations. A change in situation did not bring about a change of rights but merely caused existing rights to operate in one way rather than another.
- The respondent points, with some force in my opinion, to the terms of the definition of “acquire” in section 56FA to make the point that it is concerned with dealings in shares or interests in shares which might arise by an amendment to articles of association. The expanded definition of “acquire” must still fit within the words of section 56FN. They are:
“For the purposes of the prescribed provisions, a person acquires an interest in a corporation if the person ... acquires a shareholding in the corporation ...”
The interest may arise by virtue of a variation to a right pertaining to a share. Whether acquired in that way or not the interest must amount to the acquisition of a shareholding which immediately confers rights to participate in a winding up. The section emphasises the acquisition of shares. The interest which the respondent “acquired” on 8 November was divorced from any acquisition of shares on that date. Section 56FN when read with the extended definition requires the acquisition of a shareholding by virtue of the alteration or abrogation of a right pertaining to shares. There was no such acquisition.
- It may be noted in passing that by article 3.4:
“The rights attached to any Class of Shares may only be varied or abrogated by Special Resolution of the Company ... together with either:
- the consent in writing of the holders of 75 per cent of the issued Shares of that Class; or
- the sanction of a Special Resolution passed at a separate meeting of the holders of Shares of that Class ...”
It does not appear that any such special resolution affecting the rights of the respondent’s shares in EHM has been passed.
- Here the alteration was to the status of the shareholder, or its capacity to enjoy a right. That alteration was brought about, not by change to the essence of the shares themselves or the rights which embodied that essence, but by something extraneous to the shares. The articles contemplated that that very thing might happen and made provision for it.
- The distinction between a variation in rights contained in a shareholding and the alteration of the position of the shareholder wrought by the exercise of such rights is the subject of authority. In House of Fraser Plc v. ACGE Investments Ltd [1987] AC 387 the House of Lords considered a special resolution of a company which reduced its capital by paying off and cancelling some preference shares. No meetings of the preference shareholders were held to approve or oppose the reduction. On application to the court for confirmation of the reduction of capital, some of the preference shareholders complained that the failure to hold a meeting of their class contravened their rights under the articles of association. Lord Keith (with whom the other Law Lords agreed) noted that:
“Article 4 ... provides that the ... preference shares ... shall respectively carry certain rights and privileges, and be subject to certain restrictions and limitations. ... On a return of capital on a winding up or otherwise, the assets of the company ... shall be applied in priority ... in paying to the holders of the ... preference shares the appropriate sum ... together with the sum equal to any arrears or accruals of the fixed dividends ... The ... preference shares shall not confer the right to any further or other participation in the profits or assets of the company. The holders of the ... preference shares shall be entitled to receive notice of any general meeting ... but shall not ... be entitled to attend or vote thereat ...” (at 389-91)
Lord Keith went on (at 392-4):
“... the only question at issue ... is whether or not the proposed reduction of capital accords with the rights conferred upon the ... preference shareholders by the articles of association ... The proposed reduction of capital involved an extinction of the preferred shares in strict accordance with the contract embodied in the articles of association, to which the holders of the preferred shares were party. One of the rights attached to these shares was the right to a return of capital in priority to other shareholders where any capital was appropriately to be returned as being in excess of the company’s needs. That right was not being affected, modified, dealt with or abrogated, but was being given effect to ... The reduction of capital now proposed ... gives effect to that right [priority of repayment]. This necessarily involves, of course, that all other rights attached to the shares will come to an end ... that is something to which the holders of the shares must be taken to have agreed as a necessary consequence of their right to prior repayment receiving effect. Upon no view of the matter can it be said that as a result any of the special rights attached to the shares has been ‘modified, commuted, affected or dealt with’”
- In the Court of Session from which the appeal was brought the Lord Justice-Clerk had said (1987) SLT 273 at 278:
“... the proposed cancellation of the preference shares would involve fulfilment or satisfaction of the contractual rights of the shareholders, and would not involve any variation of their rights. Variation of a right presupposes the existence of the right, the variation of the right, and the subsequent continued existence of the right as varied. A different situation obtains where a right is fulfilled and satisfied and thereafter ceases to exist.”
The passage was expressly proved by the House of Lords. The House also gave its approval to the judgment of Buckley J (described as “a judge of unrivalled experience in company law”) in In Re Saltdean Estate Co [1968] 1 WLR 1844 in which the judge said (at 1849-50):
“... it is said that the proposed cancellation of the preferred shares will constitute an abrogation of all the rights attached to those shares which cannot validly be effected without an extraordinary resolution of a class meeting of preferred shareholders under article 8 ... that article has no application to a cancellation of shares on a reduction of capital which is in accord with the rights attached to the shares of the company.”
- The cases deal with a different situation to that at issue in this appeal but I take the point of principle which emerges from them to be that an alteration in the position of a shareholder which occurs consequent upon an eventuality provided for by the articles of association, relevant to the rights attached to shares, does not amount to a variation of the rights themselves. The right, having been exercised by reason of the occurrence of the specified act, may cease to exist. In that case it has been satisfied or fulfilled but it has not been varied.
- The respondent’s position has changed but it has done so pursuant to a term attached to the shares when they were issued to the respondent. In that sense the rights pertaining to the shares have been satisfied. They have not been altered or abrogated.
- It follows there was no acquisition by the respondent of an interest in EHM by virtue of the variation, abrogation or alteration of a right pertaining to a share. The trial judge was correct in the conclusion to which she came. The prescribed provisions did not apply to the acquisition of the shares in EHM and there was no statutory warrant for the assessment of duty by the appellant in respect of the transfer and allotment of the shares to the respondent. The trial judge was right to set aside the assessment of duty.
- Two other points relevant to the exigibility of the transaction to duty were argued. The trial judge determined both of them in favour of the appellant. They were concerned with whether EHM was a corporation to which the prescribed provisions apply and raised for consideration whether the value of Mining Lease 2671 was at least eighty per cent of the value of all of EHM’s property. The respondent contended that the points should have been found in its favour. These further points will not determine the outcome of the appeal but as they were canvassed fully in argument I will discuss them, but do so briefly.
- The prescribed provisions apply only to a corporation (section 56FL(1)) that is a land holder and whose shares are not listed on a stock exchange. A corporation is a land holder if:
“It is entitled to land in Queensland ... and the full unencumbered value of the land ... is not less than $1,000,000.00 and the full unencumbered value of all land to which the corporation is entitled ... is 80% or more of the full unencumbered value of all the property to which it is entitled ...”
- Section 56FL distinguishes between the value of land owned by a corporation and the value of all property owned by the corporation and makes it a land holder only if the value of the former is at least eighty per cent of the value of all its property.
- One of EHM’s assets was ML 2671 which was land for the purposes of the prescribed provisions. It was not in doubt that the value of the mining lease exceeded $1,000,000.00. There was a debate as to whether the value of that land was not less than eighty per cent of the value of all property owned by EHM. The appellant’s contention was that a simplified balance sheet would show the following asset position:
| Land owned in Queensland | $151,714,767.00 |
Chattels containing mining information | $ 5,147,978.00 |
| $156,862,745.00 |
The respondent asserted that exercise should show:
| Land | $ 56,300,000.00 |
Contractual rights under agreements with the owners of adjacent mining tenements | $ 78,000,000.00 |
Mining information | $ 5,700,000.00 |
Uncalled premiums on shares held by the respondent | $ 77,400,000.00 |
| $217,400,000.00 |
- The last item in the list of assets is the subject of the third point in the appeal. The present discussion concerns the second asset, contractual rights. If those rights were part of the property of EHM then the comparison required by section 56FL(2) will result in a conclusion that it was not a land holder. This would be so whether or not the uncalled premiums on shares were included as part of EHM’s property. The appellant contends that:
- the contractual rights have no separate value of their own but merely enhance the value of ML 2671; and
- they are not property for the purposes of the prescribed provisions.
- To appreciate the nature of the contractual rights it is necessary to understand that not all of the ore body which the respondent wished to exploit lay within the boundaries of ML 2671. Part of it lay within surrounding country which was owned jointly by Western Mining Corporation Ltd (“WMC”) and Hunter Resources Limited (“HR”) which together held Exploration Permit 8648 (“EP 8648”). Because of the topography of the land and the location of the ore body, not all of the minerals within ML 2671 could be extracted by utilising only the land within the lease. To win the whole of the mineral deposit within ML 2671 use would have to be made of the surrounding areas.
On 30 July, 1993 MIM, EHM, WMC and HR made a written agreement which they called the “Ernest Henry Supplemental Deed” (“supplemental deed”). By its terms WMC and HR agreed to grant EHM rights to use the surrounding land to enable it to exploit the full potential of ML 2671. EHM was allowed access to the land, to excavate part of it and to dump spoil taken from the excavation on its own land. The supplemental deed obliged WMC and HR to consent to any new mining lease application by EHM over any part of EP 8648 to allow EHM to mine the whole of the deposit. The rights conferred by the supplemental deed are the “contractual rights” in contest. They allowed EHM access to the whole of the ore body and enabled it to extract the ore in the most efficient and economical manner. The consideration for those rights was a payment of royalties by EHM in respect of the minerals recovered from within EP 8648.
- The value of the rights was derived from a comparison of the value of the project on the basis that EHM could mine the whole of the ore body by using the surrounding land, and the value of the project on the basis that access and extraction were limited to ML 2671. The difference produced the figure of $78,000,000.00. If it is right to regard the rights as property which has a separate value I do not understand it to be contended that the figure of $78,000,000.00 is not the appropriate amount.
- The trial judge concluded that the contractual rights did not form part of the realty of ML 2671 and continued (R987):
“The reality is that commercial common sense would suggest that any sale of ML 2671 would necessarily involve negotiations about the contractual rights ... [the respondent] contends that the value envisaged in the [Stamp] Act is the value to the taxpayer. I do not accept that contention. Although [the valuer] maintained that his valuation was, in reality, based on the concept of fair market value, it was based upon its value to [the respondent] ... he engaged in the exercise of severing the contractual rights from the project as a whole and in valuation terms, this is artificial ... The long accepted approach to the value of property was established in Spencer v. The Commonwealth (1907) 5 CLR 418 ... I would conclude that the contractual rights have no separate value from the mining leases but that they enhance the value of those leases”.
- I would respectfully differ from this analysis. “Commercial common sense” seems to me irrelevant to the question whether the contractual rights are property and whether they have a value separate from the realty. It may be quite right that a prospective purchaser of ML 2671 would wish to exploit it as fully and efficiently as possible. The question is whether the agreement of adjoining owners to allow that to happen has a value distinct from the mining lease itself.
- I would also disagree that the question can be answered by reference to the fact that the contractual rights have a value only to the respondent and that they form part of “the project as a whole”. Nor do I think that the principle of valuation for which Spencer is authority is helpful in the present context. Section 56FL is not concerned with how property is valued but with:
- whether a corporation owns property other than land; and
- the respective value of its real and other property.
- Once it is accepted, as I agree it must be, that the contractual rights are not part of ML 2671 I do not understand how it can be thought that they are not separate property and do not have a value.
“Property”, as Mr Crossley Vaines pointed out in his work on Personal Property (5th edition, p 3) “comprehends tangibles and intangibles, moveables and immoveables; it means a tangible thing [land or a chattel] itself, or rights in respect of that thing, or rights, such as a debt, in relation to which no tangible thing exists”. Gummow J made the same point in Smith Kline and French Laboratories (Aust) Ltd v. Secretary, Department of Community Services and Health (1990) 22 FCR 73 at 119-20:
“The concept of ‘property’ is not to be narrowly confined and comprehends ‘innominate and anomalous interests’, in addition to those estates in land or those interests in land or in a chattel or in a chose in action which are recognised at law or in equity”
See also the judgment of Jordan CJ in McCaughey v Commissioner of Stamp Duties (1945) 46 SR NSW 192 at 201. His Honour said, in part,
“Property, in the sense of proprietary rights, may exist in relation to physical objects, or to intangible things such as debts or patent rights. Each separate piece of property consists of a bundle of proprietary rights relating to a particular object ...”
A simpler definition was essayed by Pollock CB in Potter v Commissioners of Inland Revenue [1854] 156 ER 392 at 396:
“Property is that which belongs to a person exclusive of others, and which can be the subject of bargain and sale to another”.
In Danubian Sugar Factories Ltd v. Commissioners of Inland Revenue [1901] 1 KB 245 a Roumanian resident contracted to transfer certain land suitable for the erection of a sugar factory and to procure other land nearby for the cultivation of sugarbeet. The benefit of that contract was sold to an English company by an agreement made in England. The benefit of the Roumanian contract was held to be property for the purposes of the English Stamp Act.
- The rights contained in the supplemental deed fit these concepts. They were bargained and sold as Pollock CB thought important. The rights allow EHM to do things it could not otherwise do with respect to the property of WMC and HR. The rights are of a kind which have been recognised by the authorities as amounting to property. Once it is accepted that the contractual rights are property distinct from the realty it becomes impossible, in my view, to say they have no value. It is, with respect, question begging to say that they merely “enhance the value” of the mining lease. The mining lease and the contractual rights together have a value. Without the rights the lease is less valuable. A purchaser would not pay for the lease without the rights what it would pay for the lease and the rights. It is not without significance that the rights were acquired from parties other than the vendor of the shares in EHM which owned the mining lease. That is, EHM might have sold the mining lease but it could not sell the rights. To consider the value of the “project as a whole” is to focus on the wrong issue. Does the project consist of property, other than land, which has a value? That is the enquiry compelled by section 56FL.
- Accordingly, I would find that EHM was not a corporation to which the prescribed provisions applied because the land it owned did not amount to at least eighty per cent of the value of all its property. On this basis, too, the appellant’s assessment was unlawful.
- The last point is also concerned with the equation described in section 56FL. The particular point is whether the unpaid premium was property to which EHM was entitled for the purposes of section 56FL(2). If it was property then, depending on its value, EHM may not have satisfied the definition of land holder. The comparison required by section 56FL is to be made “at the time of” the acquisition of the shares in EHM by the respondent. The amount unpaid on the shares bought by the respondent and which it could be (and was) called upon to pay was $78,060,630.00. This amount was unpaid as at 9 October, 1993 when the shares were acquired.
- The respondent argued that the uncalled premiums were an asset of EHM the value of which was approximately equal to the full amount which could be called up. The appellant argued that the right, or power, to make a call on the respondent to pay the balance in the shares was not property or, if it was, it was a “mere contingency” and had no value.
- There is a difficulty in dealing with this point because the trial judge did not express a clear preference for the valuation evidence. One valuer ascribed a value of $54.84 million to the right to the future cash flows represented by the prospect that a call would be made and honoured. Another valuer ascribed nothing to the right because a purchaser would not pay for it. The trial judge appears to have accepted the appellant’s first argument that the right to call the unpaid amount, being contingent, was not property for the purposes of section 56FL(2) (R990). Her Honour may have preferred the evidence of Mr Bruton, who thought the right worthless because her Honour said, having referred to his evidence, (R990)
“It is difficult to contemplate any other than a balancing exercise, that is, that the benefit of the calls would be off-set by the obligation to pay such calls or an increased value for the shares. Further, the uncalled capital can only be called up and used for the specific purpose set out in schedule 4 of the Articles ... and for no other purpose.”
- I do not, with respect, find this convincing. Schedule 4 relevantly obliged EHM to outlay the money paid in answer to the call in conducting its mining operations and for working capital. Having the money for these purposes freed EHM from the need to borrow it for those purposes or to allocate other of its resources for those purposes. The money, when it came in, was clearly an asset of the company’s and was not the less so because it was to be used for designated purposes only. Nor do I see anything in the “balancing exercise”. The benefit of the calls accrued to EHM. The obligation to pay the call fell on the respondent.
- In my opinion the right to uncalled share premium should be regarded as property of the company. The trial judge noted that such rights normally appear in the notes to balance sheets as a contingent asset. Whether this is right or not it certainly appears that AASB 1034, paragraph 8.1(a)(iii) required the balance sheet of EHM to disclose, as part of its equity, (see paragraph 5.1(c)) the amount of capital that might be called in the event of a winding up. The unpaid premium was such an amount - see schedule 4 to the articles of association. “Equity” for the purposes of the accounting standards “is the residual interest in the assets of the entity after deduction of its liabilities”: see Statement of Accounting Concepts 4. Section 296 of the Corporations Law obliged EHM to prepare its financial reports in accordance with the accounting standards. Financial statements prepared according to the standards would have shown the uncalled share premium amount as part of the property of EHM contingently available to pay its debts. While none of this is conclusive on the point at issue it does, I think, support the view that the uncalled share premiums were contingent property. The degree of likelihood of a contingency occurring obviously affects the value of the property but the existence of the contingency does not mean it ceases to be property. The distinction was made clear by Jordan CJ In the Estate of McClure (1947) 48 SR NSW 93 at 96:
“But it was submitted that although a right to receive a sum of money is a thing in action, a conditional right to receive a sum of money is not a thing in action and, indeed, is not a right at all, or at any rate not a right of property. I am unable to agree with this ... the fact that the right is contingent may affect its value but does not prevent it from being a right or a right of property.”
- Re Vedelago [1993] 2 Qd R 110 appears to show that amounts of premium unpaid on shares can be recovered as a debt by the liquidator after the company has been wound up.
- I cannot see that a contingent asset is not an asset and that a debt contingently owed is not property as the debt itself would be. It would appear to pass Lord Wilberforce’s test, expressed in National Provincial Bank Limited v. Ainsworth [1965] AC 1175 at 1247-8. The right to make the call is definable: it is identifiable by third parties; it is capable of assumption by third parties; and it has some degree of permanence or stability.
- I would conclude that the right to call up the unpaid premium on the shares was part of the property to which EHM was entitled when the respondent acquired its share holding in EHM. Whether that has the consequence that EHM was not a land holder for the purposes of the prescribed provisions depends upon what value is to be ascribed to the right. As that matter was not the subject of a finding by the trial judge no opinion can be expressed on the question whether EHM was a corporation to which the prescribed provisions applied. If the appeal had turned on this point it would have been necessary to remit the matter for further findings of fact.
Interest
- By notice of cross-appeal the respondent challenges the trial judge’s award of interest on the duty it paid under protest on 14 December, 1994. Judgment in the application was not given until 23 December, 1998 so the respondent was deprived of a substantial sum of money for four years. It may be noted that no order was made for the repayment of the duty though by a very late amendment such an order was sought as part of the relief claimed in the application. Her Honour considered that section 30(1)(d) of the Judicial Review Act, which empowers the court to make an order directing any party to do anything that the court considers necessary to do justice between the parties, authorised an award of interest. This opinion was not criticised. Indeed her Honour’s approach was approved by the Court of Appeal in Thakral Fidelity Pty Ltd v. The Commissioner of Stamp Duties (CA 9180/97 Judgment given 10 September 1999) in which the Court confirmed that section 30(1)(d) was a sufficient source of power to award interest.
- The respondent had asked the trial judge to award interest at a rate “generally adopted when awarding interest pursuant to section 47 of the Supreme Court Act 1995”, which allows the court to award interest “at such rate as it thinks fit on the whole or any part of that sum [for which judgment is given] for the whole or any part of the period between the date when the cause of action arose and the date of the judgment”. Section 47 does not seem by its terms to apply to the present proceedings and I did not understand the respondent to argue that it did. That section authorises the court to award interest “in any proceedings in respect of a cause of action ... for the recovery of money”. The court in Thakral appears to have shared this doubt.
- Strictly speaking the appellant was not obliged to refund the duty as the result of the order. The respondent could have recovered it by an action for money had and received to which a claim for interest pursuant to section 47 could have been joined. However, as I have said, the parties have been content to argue the point on the basis that the appellant regarded the judgment as an intimation that it had no right to retain the duty it had exacted and that an award of interest pursuant to section 30(1)(d) of the Judicial Review Act was appropriate.
- The respondent seeks to challenge an exercise of judicial discretion. The statutory provision empowering the court to exercise a discretion expresses the power in very general terms. The court may make any order directing any party to do anything that the court considers necessary to achieve justice between the parties. The discretion is a wide one. In accordance with orthodoxy, an appeal against the exercise of a judicial discretion should fail unless it be demonstrated that there has been some error in the apprehension of the facts relevant to the discretion or some misunderstanding of the legal principles involved in its exercise, or such an error must be inferred from the oddness of the result.
- Proceedings under the Judicial Review Act provide a means of challenge to an assessment of stamp duty alternative to that given by section 24 of the Stamp Act. In the event of a successful appeal using that procedure the commissioner is to pay interest at a prescribed rate, currently of 5.5 per cent per annum.
- The trial judge regarded as the determining factor in the exercise of discretion the fact that interest at 5.5 per cent was prescribed in respect of successful challenges to assessments made under the Stamp Act and that no different result should follow merely because a different statutory framework was employed for the challenge. In my view the trial judge was entitled to give significance to this factor. It may not in all cases be determinative but if some other rate is to be fixed the court should be given materials to displace it. Nothing was put before the trial judge. To adopt the appellant’s submission:
“There was no material ... which demonstrates that by adopting the rate of interest prescribed by s. 24(4A) of the Stamp Act that the interest order made did not do justice between the parties. There was no evidence before Her Honour to support [the respondent’s] submission on appeal that the rate prescribed pursuant to s. 24(4A) of the Stamp Act is artificially low so as to favour the Commissioner over the citizen.”
The concluding words of the submission are an answer to the respondent’s contention that it had been wrongly held out of a very large sum for a long time and the appellant should not be allowed a windfall gain at the taxpayer’s expense. If it will suffer loss by recovering interest at 5.5 per cent it should have proved the fact. Although its submissions referred to “current rates of interest” no information was given to the court as to what rates of interest the appellant presently pays on moneys it borrows, or what return it might have expected to earn from the money for the period.
- In these circumstances it does not seem to me that the trial judge erred in refusing to guess at a rate or to assume that the rate applicable to the alternative procedure was necessarily inadequate.
- In my opinion both the appeal and the cross-appeal should be dismissed with costs.
IN THE COURT OF APPEAL
SUPREME COURT OF QUEENSLAND
Appeal No. 578 of 1999
Brisbane
[Commissioner of Stamp Duties v MIM Holdings Ltd]
BETWEEN:
THE COMMISSIONER OF STAMP DUTIES
(Respondent) Appellant
AND:
MIM HOLDINGS LTD ACN 009 814 019
(Applicant) Respondent
McMurdo P
Derrington J
Chesterman J
Judgment delivered 17 September 1999
Separate reasons for judgment of each member of the Court; each concurring as to the orders made
APPEAL AND CROSS-APPEAL DISMISSED WITH COSTS
CATCHWORDS: TAXES AND DUTIES - STAMP DUTIES - WHAT TRANSACTIONS OR INSTRUMENTS ARE LIABLE - GENERALLY - QUEENSLAND - interpretation of Aprescribed provisions@ of Stamp Act (s 56FA to s 56FO) - respondent acquired 51% of shares in Aland-rich@ company - respondent entitled to ordinary voting rights, to participate in declared dividends, but not to receive surplus in winding up - whether respondent acquired Amajority interest in a corporation@ as defined in s 56FN - whether respondent acquired an interest by Avariation, abrogation or alteration of a right pertaining to any share@ as defined in s 56FA - whether company was Acorporation@ to which Aprescribed provisions@ apply - whether contractual rights part of company=s realty or separate property - whether unpaid premiums on shares Aproperty@ for purposes of Aprescribed provisions@
CORPORATIONS - CORPORATE FINANCE - SHARES - articles of association conferred on shareholder right to participate in winding-up of company upon payment of call - whether payment effected variation to rights conferred by respondent=s shares - whether uncalled premiums on shares Aproperty@
INTEREST - RATE OF INTEREST - whether trial judge erred in exercise of discretion pursuant to s 30(1)(d) Judicial Review Act
Danubian Sugar Factories Ltd v Commissioners of Inland Revenue [1901] 1 KB 245
EIE Ocean BV v Commissioner of Stamp Duties [1998] 1 Qd R 36
House of Fraser Plc v ACGE Investments Ltd [1987] AC 387
In Re Saltdean Estate Co [1968] 1 WLR 1844
In the Estate of McClure (1947) 48 SR NSW 93
McCaughey v Commissioner of Stamp Duties (1945) 46 SR NSW 192
National Provincial Bank Limited v Ainsworth [1965] AC 1175
Potter v Commissioners of Inland Revenue [1854] 156 ER 392
Re Vedelago [1993] 2 Qd R 110
Smith Kline and French Laboratories (Aust) Ltd v Secretary, Department of Community Services and Health (1990) 22 FCR 73
Spencer v The Commonwealth (1907) 5 CLR 418
Thakral Fidelity Pty Ltd v The Commissioner of Stamp Duties (CA 9180/97, 10 September 1999); [1999] QCA 367
Judicial Review Act 1991, s 30(1)(d)
Stamp Act 1894, s 22A, s 24, and s 56FA to s 56FO
Supreme Court Act 1995, s 47
Counsel: Mr R V Hanson QC and Mr P J Flanagan for the appellant
Mr D Jackson QC and Mr F L Harrison QC for the respondent
Solicitors: Crown Solicitor for the appellant
Blake Dawson Waldron for the respondent
Hearing Date: 9 August 1999
- McMURDO P: I agree with the orders proposed by Chesterman J and with his reasons.
- DERRINGTON J: I have had the opportunity of reading the reasons for judgment of Chesterman J and have the misfortune to be in some disagreement with him on certain features, though not as to the result. Since he has stated the relevant circumstances and issues fully and clearly, there is no need for repetition.
Acquisition of Majority Interest by Acquisition of Shareholding with Specified Rights by Virtue of Alteration of Rights Pertaining to a Share
- The first issue is whether there has been an Aalteration of a right pertaining to any share@. Without doubt, there was no alteration of any terms of the articles defining the bundle of rights pertaining to shares, but this does not mean that there was not an alteration to a right pertaining to certain shares as a result of an existing provision of the articles permitting the alteration.[6] The statute does not, either expressly or by implication, limit its definition to any alteration of the articles= terms which define rights. Nor does it speak of alteration of the shareholder=s totality of rights as a whole. It speaks simply of alteration to a right pertaining to a share, and this should be given its ordinary literal meaning.
- A right to participate in any distribution of capital is a right pertaining to a share. Immediately prior to the payment of the relevant call the taxpayer had no such right pertaining to its shares, merely a right to obtain that right by the payment of the relevant call. When the call was paid, the shareholder then had the right pertaining to the share to participate in a distribution of capital where it had had no such right before. Although it is not a necessary feature to establish that this amounted to an alteration, the taxpayer=s payment of a substantial sum to acquire the right emphasises that there was indeed an alteration of the right from merely potential to actual.
- This new right was no less the result of an alteration because the alteration was achieved through other rights also pertaining to the shares. This is why it does not matter that the articles were not amended to change the rights to effect it. For example, if the articles provided that a share of a certain class would carry no voting rights, but that if a payment were made, it would carry full voting rights, it would be contrary to ordinary usage to say that a right pertaining to it had not been altered. It would not be to the point of that simple enquiry whether the articles provided the mechanism for the alteration.
- Rights pertaining to the shares may be regarded on two levels. The first is of the substantive kind, such as the right to participate in a distribution of capital. The other is of the kind that permits or operates to affect an acquisition of new rights or an alteration of existing rights. The latter are only triggers for change, and the fact that substantive rights are altered through such other rights does not mean that they are not altered. It merely means that they can be altered by this in-built method without altering the articles. In this context it would be wrong to confuse the rights which are altered with the rights which are the means of their alteration or the articles which control the process of alteration.
- In some contexts it may be appropriate to construe a reference to rights pertaining to the shares as an amalgam so that an alteration to some rights in accordance with an internal provision allowing for it may not involve an alteration to the totality of rights.
- On one view,[7] it might be said that the change here was the fulfilment of the original right, but this is predicated on an approach that addresses the shareholder=s totality of rights as a whole and not the particular rights that might be altered in the fulfilment of other rights.
Footnotes
[1] cf House of Fraser Plc v ACGE Investments Ltd [1987] 1 AC 387 (H.L.).
[2] As in House of Fraser (supra).
[3] This is why the construction here differs from that in House of Fraser (supra).
[4] This was the method by which they were valued.
[5] That the shareholder may ultimately receive dividends and a distribution of residual assets by virtue of other rights does not reduce the force of this observation.
[6] cf House of Fraser Plc v ACGE Investments Ltd [1987] 1 AC 387 (H.L.).
[7] As in House of Fraser (supra).