Archibald Howie Pty. Ltd. v Commissioner of Stamp Duties (N.S.W.)

77 CLR 143

(Judgment by: Dixon J)

Archibald Howie Pty. Ltd.
v. Commissioner of Stamp Duties (N.S.W.)

Court:
High Court of Australia

Judges: Rich J

Dixon J
Williams J

Subject References:
Stamp Duties

Hearing date: Sydney, 1948, August 19; Melbourne, 1948, October 18.
Judgment date: 18 October 1948

Melbourne


Judgment by:
Dixon J

The question upon this appeal is under which sub-section of s. 66 of the Stamp Duties Act 1920-1940 (N.S.W.) certain transfers of shares fall. The choice is among sub-ss. (3) (a); (3A) and (3B). The sub-sections relate to conveyances, an expression which by s. 65 and the definition of s. 3 of "property" includes, among other things, transfers of personal property and things in action.

2. Sub-section (3) (a) prescribes the duty to be charged upon conveyances without consideration in money or money's worth; sub-s. (3A) prescribes the duty to be charged upon a conveyance made upon a bona fide consideration in money or money's worth of less than what is called the unencumbered value of the property conveyed; and sub-s. (3B) prescribes the duty to be charged upon a conveyance made upon a bona-fide consideration in money or money's worth of not less than the unencumbered value of the property conveyed.

3. The transfers were made by the appellant company to two shareholders, who held the issued share capital of the company, with the exception of one share. The subject of the transfers was certain shares in other companies, forming part of the assets of the appellant company. The purpose of the transfers was to carry out a resolution, duly confirmed, for the reduction of the share capital of the appellant company. The reduction was carried out by a distribution of these assets in specie.

4. The share capital of the appellant company was 125,000 pounds divided into 125,000 shares of 1 pound each. A little less than two-thirds of the shares had been issued and they were fully paid up. The special resolution for the reduction of capital provided that the reduced capital should be divided into shares of 1 pound each (the number of which corresponded with the unissued capital) and shares of 6d. each (the number of which corresponded with the issued capital) and that the reduction should be effected by returning to the holders of the issued shares paid up capital to the extent of 19s. 6d. per share. The special resolution proceeded to say that the capital should be returned by distributing in specie at the value thereof appearing in the books of the company to the shareholders proportionately to their holdings assets of the company consisting in the shares in other companies already mentioned. The value so appearing in the books of the company is the equivalent of 19s. 6d. in the 1 pound of the issued capital and doubtless in this fact is to be found the reason for reducing the shares issued from a paid up value of 1 pound to a paid up value of 6d. each. But in the aggregate the book value of the shares was little more than seventy per cent of their actual or market value at the date of transfer.

5. Upon this state of facts Jordan C.J. and Street J. in the Supreme Court were of opinion that the transfers were made without consideration in money or money's worth and Davidson J. was of opinion that they were made for a consideration in money or money's worth but that for all that appeared that consideration might be less than the full unencumbered value of the shares transferred. In my opinion the view that the transfers were made for a consideration in money or money's worth within the meaning of s. 66 is correct.

6. In the context I think that the word "consideration" should receive the wider meaning or operation that belongs to it in conveyancing rather than the more precise meaning of the law of simple contracts. The difference is perhaps not very material because the consideration must be in money or money's worth. But in the law of simple contracts it is involved with offer and acceptance: indeed properly understood it is perhaps merely a consequence or aspect of offer and acceptance. Under s. 66 the consideration is rather the money or value passing which moves the conveyance or transfer.

7. In a distribution in specie in consequence of a reduction of capital brought about because of the possession of surplus assets there are in my opinion two aspects of the transaction in which an adequate consideration in money or money's worth may be seen. They are perhaps two sides of the same thing, but for clearness I shall distinguish between them in stating reasons for my conclusion.

(1) A reduction of capital involving the payment off of any paid up share capital, or what is in essence the same thing, the distribution of assets in specie in satisfaction of paid up share capital, is a transaction which must be provided for by the articles of association. We have not been furnished with the articles in the present case, but they must contain the requisite clauses. While a shareholder has not a proprietary right or interest in the assets of an incorporated company, his "share" is after all an aliquot proportion of the company's share capital with reference to which he has certain rights. He is entitled among other things to have share capital applied in pursuance of the memorandum and articles of association and, so far as assets are available for the purpose, to have his paid up capital returned in a liquidation or upon a reduction of capital if that method of returning it is decided upon pursuant to the articles of association. These rights all arise out of the contract inter socios.

8. It is not unimportant that s. 158 (1) of the Companies Act 1936 (N.S.W.) (which is based on s. 55 (1) of the English Companies Act 1929) empowers a company to reduce its capital only "if so authorized by its articles." The reduction involving the payment off of part of the paid up share capital must therefore be considered an effectuation of a provision of the contract of membership. The allotment of the share and the payment up of the liability thereon conferred upon the holder for the time being of the share a right to have the assets of the company used and applied in the various ways in which the articles expressly or impliedly require or authorize and this is one of them. It is an effectuation or realization of the rights obtained by the acquisition of the share in the same way as is the distribution of a dividend. The consideration given is the payment up of the share capital in satisfaction of the liability for the amount of the share incurred on allotment.

(2) From the standpoint of company law the division of the capital of a company into shares and the payment up of shares issued are regarded as respectively significant and real. The shareholder contributes the amount of the share to the capital of the company. This contribution measures his right to any return of capital which the company may make either as a going concern or in a winding up. Subject to any regulation the articles may make as to the basis upon which assets in excess of share capital may be distributed, the amount of the share determines the proportion in which he shares with other shareholders in a distribution of excess assets.

9. Thus when the amount of the issued shares in the case of this company was reduced from 1 pound each to 6d. each, it meant that if any of the unissued 1 pound shares were afterwards issued the proportion in which the respective holders of a share of the former issue and of one of the subsequent issue would in a winding up share in any funds exceeding the share capital would be as 1 is to 40. This is but an illustration of the significance of the division of the share capital into shares, shares now of a different denomination. (at p153)

10. The truth is, however, that the return of 19s. 6d. of the amount paid up is the discharge pro tanto of a claim of the shareholder upon the assets of the company. If the transaction had taken the form of a reduction pursuant to par. (c) of s. 158 (1) of the Companies Act the resolution must have been expressed as a payment off of part of the share capital. If that had been followed by a requirement that assets should be accepted in satisfaction of the amount paid off, it would have doubtless been regarded as the acquisition of assets for a consideration expressed in money.

11. But s. 158 (1) confers a power of reduction which, if the authorization in the articles is sufficiently wide, may go outside the three paragraphs of the sub-section (Re Thomas de la Rue & Co. and Reduced (1911) 2 Ch 361 ). The direct allocation of assets for distribution in reduction of the amount of the shares is doubtless within the provision. But that means that the shareholder in satisfaction of his proportionate "interest" in the assets, an interest consisting of a congeries of rights in personam, takes an aliquot part of the assets. There is an equivalence not only from a logical but from a realistic point of view. The reduction in both the amount and value of the share affords an adequate consideration in money and in money's worth.

12. It was said that the decision of Lawrence J. in Associated British Engineering Ltd. v. Inland Revenue Commissioners [1941] 1 KB 15 and of Wrottesley J. in Wigan Coal & Iron Co. Ltd. v. Inland Revenue Commissioners [1945] 1 All ER 392 tended against the foregoing conclusions. But they are decisions on very different provisions and I do not think either of those learned judges adverted to the considerations upon which my opinion is founded.

13. I think that the appeal should be allowed with costs and that the order of the Supreme Court should be discharged. The first question in the case stated should be answered "under the provisions of s. 66 (3B)." The costs of the case stated should be borne by the respondent the Commissioner of Stamp Duties.