Case Detail

DCSA 4/2017

[2019] HKDC 852

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 4 OF 2017

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IN THE MATTER of Section 14 of the Stamp Duty Ordinance, Cap 117

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BETWEEN
	NOMURA FUNDS IRELAND PLC	Appellant
and
	THE COLLECTOR OF STAMP REVENUE	Respondent

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Before: His Honour Judge Andrew Li in Chambers (Open to Public)

Date of Hearing: 14 June 2019

Date of Decision: 14 June 2019

Date of handing down Reasons for Decision: 21 June 2019

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REASONS FOR DECISION

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INTRODUCTION

1. This is an application by Nomura Funds Ireland Plc (“the appellant”) for leave to appeal to the Court of Appeal against my decision handed down on 22 March 2019 (“the Decision”).

2. At the end of the hearing on 14 June 2019, I dismissed the appellant’s application with costs in favour of the respondent. I said I would provide the reasons for my decision in due course. Here are the reasons.

BACKGROUND

3. The facts of this case can be found in the Decision and in the Case Stated summed up by the respondent which had been agreed by the appellant prior to the original appeal hearing. I do not need to repeat them here.

4. The appellant relies on 4 substantive grounds plus the additional “public interest” ground in its draft notice of appeal (“the Draft Notice of Appeal”).

5. It is trite that no leave should be granted if any of its grounds set out in the Draft Notice of Appeal is devoid of merits or unarguable. To put it in another way, unless the appellant can demonstrate to the court that there is a reasonable prospect that it will succeed in the Court of Appeal “or otherwise” that in the interests of justice that the appeal should be allowed, then no leave should be allowed: see section 63A of the District Court Ordinance, Cap 336.

6. I shall discuss each of those grounds relied on by the appellant and the reasons why I had dismissed the application hereinbelow.

DISCUSSION

Ground 1: The court erred in law in rejecting the evidence of Luxembourg law provided in writing by Luxembourg counsel at the request of the respondent

7. Under this ground, Mr Mariani, solicitor for the appellant, submits that whereas the court was correct to identify the House of Lords judgment in Lazard Brothers & Co v Midland Bank Ltd [1933] AC 289 as authority for the proposition that the existence and incidents of a company’s personhood, and any change thereof, are governed by the laws of the jurisdiction of its incorporation (see §28 of the Decision), it erred in law by failing to bring that general principle to its only logical conclusion in rejecting uncontested evidence of Luxembourg law as provided by Luxembourg counsel in two separate opinions, in each case expressly solicited by the respondent, and furnished by the appellant at the appellant’s expense: (see §§41 to 46 of the Decision).

8. In particular, the appellant submits that the Second Opinion set out in detail the analysis and reasoning of Luxembourg counsel on which its conclusions of law were premised, and was thus internally consistent on its own terms and not manifestly wrong or unfounded. It was thus impermissible for the court to speculate on the proper content or depth of reasoning of an opinion of Luxembourg law (see §§45 to 46 of the Decision). Thus, it says that there is no tenable basis for a forum with no alternative understanding of Luxembourg law to presume what the appropriate content or mode of reasoning is for an opinion of foreign law where the conclusions draw in that opinion are on their face arguable and not patently contradictory or absurd.

9. Further, the appellant submits that the authorities cited by counsel for the respondent and accepted by the court at §43 of the Decision in rejecting the probative value of the Second Opinion were not on point. According to the appellant, those decisions turned on the evidential weight to be accorded to opinions of foreign law in the ambit of commercial disputes; that context is fundamentally distinct from a foreign law firm issuing an opinion addressed to a public body in Hong Kong at the express request of that public body. At no time did the respondent ever assert any submission to the effect that Luxembourg counsel was in any way unqualified to opine on matters of Luxembourg law, or otherwise lacked the requisite objectivity or impartiality of an expert witness.

10. The appellant further submits that it was inconsistent with good public administration and procedural fairness for the respondent to do what they did in this case.

11. With respect, I do not accept any of the above submissions.

12. It is firstly wrong for the appellant to contend that the two Opinions were “uncontested”. The respondent did. I accept the submission of the respondent’s counsel, Mr Jonathan Chang that, just because there was no expert opinion from the respondent it did not mean the two Opinions were “uncontested” and must be accepted by this court.

13. I also fail to understand how the two Opinions could be said to have been adduced “at the express request” of the respondent. I do not think it was the case at all. In this regard, I agree with the respondent that the burden of challenging the stamp duty assessment falls on the appellant, and it is up to the appellant to adduce evidence for such purpose. It is not for the respondent to disprove any propositions or theory, whether it is on a matter of law or fact, put forward by the appellant in such an appeal. Hence, I agree with Mr Chang that the respondent was plainly entitled to challenge the two Opinions as not supporting the appellant’s case.

14. In my judgment, there is nothing in the respondent’s conduct that is “inconsistent with good public administration and procedural fairness” as the appellant contended. In any event, it is unclear how this could possibly assist the appellant in its appeal. As I have put to Mr Mariani during the hearing, these are clearly administrative law matters which the appellant has to seek judicial review on if they are not satisfied with the way they were being dealt with “administratively”. This court does not have any jurisdiction on such matters.

15. Further, with greatest respect to the appellant’s solicitor, the two authorities cited in §43 of the Decision on the court’s approach in evaluating expert evidence are directly on point and I cannot see how they can be distinguished as submitted by the appellant. I simply cannot see how these authorities are limited to “commercial disputes” only and why the court should adopt a different approach in other disputes. I reject such absurd argument.

16. I also believe that I have comprehensively analyzed the terms of the Merger Proposal read in light of the relevant provisions under the Luxembourg law and concluded that it was the Merger Proposal that had effected the Merger and in turn the transfer of the HK Securities to the Receiving Sub-Fund, and gave detailed reasons why the two Opinions did not support the appellant’s contention in my Decision: (see §§30-47 of the Decision). The appellant did not advance any argument either in its skeleton or in its Draft Notice of Appeal as to why my reasoning was flawed, save to repeat that the two Opinions were “uncontested” and the court should not have rejected them. I do not find this as a convincing argument at all and it certainly does not satisfy the established criteria for the court to grant leave to appeal.

Ground 2: Even if the court had been correct in rejecting the evidence of Luxembourg law before it, it erred in law by interpolating its own interpretation of Luxembourg law

17. Under this proposed ground of appeal, the appellant submits that there was no basis in fact or law for the court to conclude that the transmission of the HK Securities took place otherwise than by operation of Luxembourg law. It contends that such conclusion was inconsistent with the unambiguous and uncontroverted evidence of Luxembourg counsel (see §§40 & 46 of the Decision). It further says that the court had neither the expertise nor the jurisdiction to opine directly on substantive matters of Luxembourg law. It therefore erred in substituting its own views of Luxembourg law for those of Luxembourg counsel. In effect, the court did not merely reject the evidence of Luxembourg law before it, but substituted its own views (see §§38-40 & 46 of the Decision), which was likewise impermissible and inconsistent with authoritative jurisprudence on point. In this regard, the appellant relies on Di Sora v Phillipps[1863] X HLC 624 as an “unambiguous authority” for the proposition that the court is not entitled simply to look behind the foreign legislation in question, and form its own view on the basis of its analysis or inference. Hence, the appellant submits that the proper course of action in a case of uncontroverted evidence of foreign law being provided by a reputable firm of Luxembourg lawyers to a public body in Hong Kong would have been either for the respondent to present alternative evidence of Luxembourg law, which he could have with ease given that he had the benefit of the resources of the Government of Hong Kong to support him in that endeavour, or for the court to have directed Nomura Ireland to seek further advice from Luxembourg counsel to clarify any doubts the court may have had on the analysis contained in the Second Opinion.

18. With respect to the appellant’s solicitor, this ground is really the flip side of the same coin as ground 1 above. I have already dealt with this in the preceding paragraphs and would not repeat what I have stated underground 1 above. I would however like to stress that I had already analysed the specific wording utilised in the official English language version of the Luxembourg law in the Decision: (see §§40-46 of the Decision).

19. Mr Mariani submits that I have acted on the fundamental misconception that words as used in EU or Luxembourg legislation necessarily bear the same meaning as they would at Hong Kong law, or otherwise in the common intendment of those words. According to him, that approach is flawed because a given word, even when translated into the English language, may have a specific juristic acceptation such that their semantic or technical meaning at Hong Kong law is not necessarily dispositive as to what they might mean in the specific context of a foreign statute (Camille & Henry Dreyfus Foundation Inc. v IRC [1954] Ch. 672, at 692; affirmed [1956] AC 39, per Evershed MR).

20. With greatest respect, this matter, namely, that the English version of the Luxembourg law should somehow be given a different meaning from what appears on its face, is a completely new ground raised in this application. No such argument was presented before this court at the previous hearing. The appellant has not suggested what different meaning should be ascribed to the provisions. Thus, this proposed new ground in my view does not even take off the ground.

Ground 3: The court erred in law in finding that there was no material distinction to be drawn between a transfer and a transmission in the context of the Stamp Duty Ordinance (“SDO”)

21. Under this ground, the appellant submits that there is a fundamental distinction between a transfer (that is, devolution of property by a voluntary act of the disponor) and a transmission (that is, devolution of property by operation of law) in the ambit of the SDO. Mr Mariani says that distinction is long-established and fundamental in corporate law, as evidenced by the drafting of Division 4, Part 4 of the Companies Ordinance, Cap 622, and must therefore be reflected in the application of the SDO, which, in view of its subject-matter, was intended to apply to circumstances arising specifically out of matters of Hong Kong corporate and property law.

22. He further submits that Head 2(3) of the First Schedule of the SDO makes clear that the charge to ad valorem stamp duty applies only to a transfer, and not to a transmission. Because stamp duty is a tax on instruments, not on transactions, the “transfer” as contemplated in Head 2(3) can only be a transfer understood as an instrument of corporate law and not a transfer in the generic, non-technical sense of the term, as in ‘to transfer’ understood as a verb. Accordingly, he says that this court erred in law in concluding that a transfer within the meaning of Head 2(3) of the First Schedule means no more than parting with something to another (see §51 of the Decision).

23. The appellant further submits that there is nothing in the schema or the drafting of the SDO to suggest that the charging heads in the First Schedule exist in an isolated or discrete context, wherein matters of corporate law are to be disregarded or re-characterised. Hence, the appellant contends that this court, in particular, failed to acknowledge the effect of the authorities pleaded in aid by Nomura Ireland that made clear that technical words must be given their technical meaning in construing a taxing statute: see ITSPC v Pemsel [1891] AC 531; Miramar Hotel & Investment Co & Ors v CSR [1961] HKLR 673. Thus, my conclusion in the Decision that “in the context of determining stamp duty under the SDO, any such difference [as there is between a transfer and a transmission], if any, is plainly irrelevant” (at §49 of the Decision) was, in its submission, therefore untenable.

24. Further, the appellant submits that the Decision failed to consider the effect and implications of the Singaporean decision in JX Holdings Inc v Singapore Airlines Ltd [2016] SGHC 212, which, in its submission, was entirely on point, having been decided in a context of a corporate and stamp duty code very similar to those of Hong Kong.

25. Lastly, the appellant says that I had further declined to provide any principled reason by which the transmission of the assets of a decedent under a will does not give rise to a charge to stamp duty, which was common ground throughout proceedings, but the transmission of the HK Securities by virtue of the Merger does when that very point was put to him both in the skeleton argument on behalf of Nomura Ireland and in oral submissions. That, in turn, gave rise to an internal inconsistency in the reasoning of the Decision, with the effect of not treating like cases alike, which is inconsistent with first principles of revenue law.

26. Again, I do not agree with the appellant’s propositions set out in the above paragraphs.

27. I agree with Mr Chang for the respondent that, given this court’s rejection that the Merger was effected by operation of Luxembourg law, the appellant’s reliance on the alleged difference between “transfer” (by voluntary act) and “transmission” (by operation of law) could not advance its case any further.

28. In any case, this court held in §53 of the Decision that any difference between “transfer” and “transmission” in other contexts (such as companies law or succession law) could not have any bearing on how the word “transfer” under the SDO should be interpreted. This must be right in my view. The appellant’s contention that “transfer” under Head 2(3) of the First Schedule “can only be a transfer understood as an instrument of corporate law” (see §5 of the draft Notice of Appeal) is not based on any legal authority and in any event made no sense, when a transfer under Head 2(3) is not limited to between corporate entities.

29. I further agree with Mr Chang that JX Holdings, supra is not on point at all (see §7 of the Draft Notice of Appeal) for the reasons stated in his written submissions.

30. In my view, “transfer” is not a technical word. As I have pointed out in the Decision, it simply means “one parting with something to another”: see §51. It is beyond dispute that under the Merger Proposal the Merging Sub-Fund part with the HK Securities which were vested on the Receiving Sub-Fund. The appellant does not seek to argue otherwise. In my judgment, this clearly was a “transfer” within the meaning of the SDO.

31. I therefore would reject ground 3 contained in the Draft Notice of Appeal also.

Ground 4: Even if there had been a transfer of the HK Securities under the Merger, the said transfer would be exempt under section 27(5) of the SDO by virtue of being a transfer under which no beneficial interest passes

32. Under ground 4, the appellant says that the court has erred in law by discounting the application of section 27(5) to exempt the Merger Proposal from the charge to ad valorem stamp duty as a transfer under which no beneficial interest passes (at §§54 to 56 of the Decision). It submits that in rejecting the application of that exempting provision, it was not merely sufficient to conclude that the Merger Proposal was a transfer within the meaning of Head 2(3) of the First Schedule, but it was further necessary to conclude that as a matter of Luxembourg law beneficial interest in the HK Securities passed underthe Merger Proposal.

33. Mr Mariani submits that is a matter to be determined by reference to Luxembourg law (see Lazard Brothers, supra and JX Holdings, supra) and this court was not in that regard equipped to arrive at the substantive conclusion of Luxembourg law that the Merger Proposal, as an instrument of Luxembourg law, “implemented the Merger and, in turn, the transfer of beneficial interest in the HK Securities”: (see §57(3) of the Decision).

34. I disagree.

35. As stated in §55 of the Decision, the appellant’s contention that no beneficial interest in the HK Securities passed under the Merger Proposal was essentially based on the same argument that the HK Securities passed under the Luxembourg law, not the Merger Proposal. In my view, given the court’s rejection of the appellant’s primary case, the alternative argument must fall away.

36. With respect, the appellant has failed to put forward any argument why despite there being a transfer of the HK Securities under the Merger Proposal, no beneficial interest in the HK Securities passed under Luxembourg law, and has thus failed to show how section 27(5) of the SDO applies.

The “Or otherwise” ground

37. I agree with Mr Chang’s submission in this regard that the conclusion reached by this court in the present case is plainly fact-sensitive based on the specific terms of the Merger Proposal and has no “across-the-board” implication. In my view, no question of “fundamental importance to the fund industry in Hong Kong” can arise.

38. I further agree with Mr Chang for the respondent that there is simply no evidence whatsoever that “historically” fund entities merging under EU law took the position that foreign law mergers of legal personality were “stamp neutral” in Hong Kong: (see §23 of the appellant’s skeleton).

39. In any event, in my judgment, given none of the proposed 4 draft grounds of appeal has any merit or is reasonably arguable, there is no basis for the appellant to rely on the “or otherwise” limb to justify leave to appeal.

Costs issue

40. The appellant described this as a “peripheral but pressing matter” in its written submission. It says that it should not bear the costs of the appeal despite my dismissal of the same.

41. In my judgment, there is absolutely no merits in such contention. Costs simply follows the event.

42. Besides, there was nothing contained in the appellant’s summons to indicate that the appellant sought to vary the costs order in the Decision.

43. I therefore maintain my decision on costs in the appeal.

CONCLUSION

44. For the aforestated reasons, I had dismissed the appellant’s application on 14 June 2019, with costs to the respondent, with certificate for counsel.

	(Andrew SY Li)
	District Judge

Mr Stefano Mariani, of Deacons, for the appellant

Mr Jonathan Chang, instructed by Department of Justice, for the respondent

DCSA 4/2017

[2019] HKDC 406

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 4 OF 2017

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BETWEEN
	NOMURA FUNDS IRELAND PLC	Appellant
and
	THE COLLECTOR OF STAMP REVENUE	Respondent

---------------------------

Before:

His Honour Judge Andrew Li in Chambers (Open to Public)

Date of Hearing:	26 September 2018
Date of Decision:	22 March 2019

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DECISION

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INTRODUCTION

1. This is an appeal by way of Case Stated against the stamp duty assessment made by the respondent The Collector of Stamp Revenue (“the respondent”) on 13 January 2017 whereby he had assessed the stamp duty payable by the appellant Nomura Funds Ireland Plc (“the appellant”) on an instrument titled ‘Common Merger Proposal’ (“Merger Proposal”) in the sum of HK$627,216.

BACKGROUND

Factual Background

2. The background of the case is not in dispute. They appear in the Case Stated prepared on behalf of the respondent and the summary of facts prepared by the respondent’s counsel in his written submissions. I would respectfully adopt them below, with appropriate modifications where appropriate.

3. The appellant is an investment company incorporated in Ireland. It is structured as an umbrella fund consisting of different sub-funds. The assets of each sub-fund will be invested separately on behalf of each sub-fund in accordance with the investment objective and policies of such sub-fund.

4. Nomura Funds Ireland - China Fund (“the Receiving Sub-Fund”) is one of the sub-funds of the appellant.

5. The appellant is authorized by the Central Bank of Ireland as a UCITS, ie an ‘Undertaking for Collective Investment in Transferrable Securities’ established pursuant to Council Directive 2009/65/EC (“EU Directive”) published by the European Union (“EU”) on 13 July 2009. UCITS are in essence undertakings with the sole object of collective investment in transferrable securities or other liquid financial assets of capital raised from the public, operating under the principle of risk-spreading.

6. Nomura Funds which are based in Luxembourg (“Nomura Luxembourg”) is an investment company incorporated in that country. It is a UCITS established in Luxembourg. At the relevant time, the sole active sub-fund of Nomura Luxembourg was ‘Nomura Funds - China Opportunities’ (“Merging Sub-Fund”), and the investments in the Merging Sub-Fund consisted entirely of securities listed on the Hong Kong Stock Exchange (“HK Securities”).

7. By the Merger Proposal, Nomura Luxembourg and the appellant agreed to merge the Merging Sub-Fund in the Receiving Sub-Fund with effect from 27 April 2015 (“Merger”).

8. The following are the key terms of the Merger Proposal:-

(1)   The Merger shall be effective on 27 April 2015.
(2)   On the effective date, in accordance with Article 1(20) (a) of the Luxembourg law of 17 December 2010 relating to undertakings for collective investment (“the Luxembourg Law”):-
(a)   the Merging Sub-Fund will transferall of its assets and liabilities to the Receiving Sub-Fund as a contribution in specie, in exchange for shares in the Receiving Sub-Fund to be issued to the sole shareholder of the Merging Sub-Fund^{^[1]};
(b)   the shares of the Merging Sub-Fund will be cancelled, and Nomura Luxembourg shall cease to exist.
(3)   The Merger is subject to the approval of the shareholder of the Merging Sub-Fund.

9. Article 67(1) of the Luxembourg Law provides that where the merging UCITS is established in Luxembourg (in our present case, the Merging Sub-Fund), its merger with another UCITS (in our present case, the Receiving Sub-Fund) is subject to the prior authorization by the Commission for the Supervision of the Financial Sector (“CSSF”) in Luxembourg.

10. On 12 March 2015, the CSSF notified Nomura Luxembourg that it had no objection to the implementation of the Merger.

11. On 9 April 2015, the sole shareholder of the Merging Sub-Fund passed a resolution to approve the Merger.

12. On 27 April 2015, the Merger took place.

13. Nomura Luxembourg ceased business on the same day and was de-registered on 18 May 2015.

Substantive issue in dispute

14. The resolution of this appeal ultimately turns on one single question, namely, what was the effect of the Merger Proposal?

15. Or, in the words of the appellant’s solicitor Mr Stefano Mariani, who represents the appellant in the appeal, was the Merger Proposal an instrument chargeable with Ad Valorem Stamp Duty (“AVSD”) under Head 2(3) of the First Schedule by virtue of being a transfer made for the purposes of effectuating a transaction whereby or under which beneficial interest in the HK Securities passed to Nomura Ireland, and not otherwise exempt from AVSD?

16. I would refer to the above issue as the “Substantive Issue” in this Decision.

DISCUSSION

The relevant local statutory provisions

17. Section 4(1) of the Stamp Duty Ordinance, Cap 117 (“SDO”) provides that “every instrument, wherever executed, specified in the First Scheduleshall be chargeable with the stamp duty”.

18. Head 2 of the First Schedule of SDO refers to instruments relating to Hong Kong stock, and Head 2(3) states:-

“TRANSFER operating as a voluntary disposition inter vivos or made for the purpose of effectuating a transaction whereby the beneficial interest in Hong Kong stock passes otherwise than on sale and purchase, including a foreclosure order.”

The relevant Luxembourg Law

19. Article 1(20)(a) of the Luxembourg Law^{^[2]}is a definitional section, which the appellant submits “relevantly” provides that a “merger” means:-

“one or more UCITS or investment compartments thereof, the ‘merging UCITS’, on being dissolved without going into liquidation, transfer all of their assets and liabilities to another existing UCITS or an investment compartment thereof, the ‘receiving UCITS’, in exchange for the issue to their unit-holders of units of the receiving UCITS and, if applicable, a cash payment not exceeding 10% of the net asset value of those units.”

20. Although there are two other means by which a merger may be effected within the meaning of Article 1(20) of the Luxembourg Law, the appellant says that the Merger was in fact effected under point (a).

21. Article 76(1) of the Luxembourg Law^{^[3]} is an operative section, which provides:-

“A merger effected in accordance with point (20)(a) of Article 1 shall have the following consequences:-
(a) all the assets and liabilities of the merging UCITS are transferred to the receiving UCITS or, as the case may be, to the depositary of the receiving UCITS;
(b) the unit-holders of the merging UCITS become unit-holders of the receiving UCITS and, as the case may be, they are entitled to a cash payment not exceeding 10% of the net asset value of their units in the merging UCITS; and
(c) the merging UCITS established in Luxembourg ceases to exist on the entry into effect of the merger.”

The parties’ respective case

The appellant’s case

22. In essence, the appellant’s case can be summarized as follows:-

(1) There was no transfer of the HK Securities, but only transmission of the HK Securities to the Receiving Sub-Fund by operation of the Luxembourg Law. It was the Luxembourg Law, not the Merger Proposal, that had the effect of vesting the HK Securities on the Receiving Sub-Fund. As such, the Merger Proposal is not a “stampable” instrument under Head 2(3) of the First Schedule to the SDO: (See §24.1 of the appellant’s Skeleton Argument).
(2) Alternatively, no beneficial interest in the HK Securities passed under the Merger Proposal as the HK Securities passed under the Luxembourg Law: (See §24.2 of the appellant’s Skeleton Argument).

The respondent’s case

23. In short, the respondent’s case is that the Merger Proposal is chargeable to AVSD under s 4(1) and Head 2(3) of the First Schedule to the SDO as a transfer because it was:-

(1) operating as a voluntary disposition inter vivos; or
(2) made for the purpose of effectuating a transaction whereby the beneficial interest in Hong Kong stock passes otherwise than on sale and purchase.

The “Prior Issue”: is the case a matter of Luxembourg Law?

24. The appellant contends that there is a “prior issue” for the court to decide in this case.

25. The appellant claims that the Merger took place under and in accordance with the laws of Luxembourg and the EU and not Hong Kong law (“the Prior Issue”).

26. The appellant contends that it is a well-established principle at common law that foreign law is a matter of fact to be pleaded and proved (see for example Ottoman Bank of Nicosia v Chakarian (No.2) [1938] AC 260 (PC), at 279). The appellant says that there are before the court two unchallenged expert opinions issued by Luxembourg counsel on certain matters of EU and Luxembourg corporate law and the application of the Directive. Specifically, Luxembourg counsel came to, inter alia, the following conclusions:-

(1)   The Merger under the Merger Directive and the Luxembourg Law was a merger by way of universal succession, whereby Nomura Ireland succeeded by operation of law to all the assets and liabilities of Nomura Luxembourg, which was subsequently dissolved without liquidation.
(2)   The transmission (as contrast to a “transfer” in law) of the assets of Nomura Luxembourg to Nomura Ireland was a consequence and not the cause of the Merger; thus, the Merger was procedurally prior to the said transmission of assets, which was the only legally mandated consequence of the Merger taking effect under the Luxembourg Law. In other words, first there was a merger as defined in Article 1(20)(a) of the Luxembourg Law and then (and only then, albeit by a scintilla of time), did there follow by way of statutorily mandated consequence under Article 76 of the Luxembourg Law, the vesting of all assets and liabilities of the merging company in the merged company.
(3)   Article 76(1) of the Luxembourg Law was the provision of law which operated to vest the assets and liabilities of Nomura Luxembourg in Nomura Ireland; by extension, the first and sole cause of the transmission of assets from Nomura Luxembourg to Nomura Ireland was Article 76 of the Luxembourg Law.
(4)   The Merger Proposal is not a contractual instrument, it is a regulatory document and is incapable of effectuating a transfer of property.

27. The appellant claims that the opinions of Luxembourg and EU law summarized above were given by Luxembourg counsel without reservation. In the absence of alternative expert evidence, the appellant says that they should be taken by the court as evidence of the true legal mechanism and effects of the Merger under its proper law. The appellant further claims that the respondent does not dispute Luxembourg counsel’s competence to opine on such matters of Luxembourg and EU law.

28. The appellant further submits that a corollary of the Prior Issue is that the existence and the incidents of a company’s personhood, and any change thereof, are governed by the laws of the jurisdiction of its incorporation (Lazard Brothers & Co v Midland Bank Ltd [1933] AC 289 at 297 - 298 per Lord Wright). By extension, the question of whether a given operation of foreign law vests assets in a person by universal succession or otherwise is, strictly, a matter of the proper law of the said operation.

29. Hence, the appellant submits it would follow that the incidents of the Merger and, in particular, its effects on the corporate personalities of Nomura Luxembourg and Nomura Ireland, and the legal machinery by which the assets of Nomura Luxembourg, relevantly including the HK Securities, were vested in Nomura Ireland are matters of Luxembourg and EU Law, which, having been evidenced in unambiguous terms by Luxembourg counsel, should in the respectful submission of Nomura Ireland be accepted by this court as proven matters of fact.

Ruling on the Prior Issue

30. I shall first dispose of the Prior Issue here and then deal with the Substantive Issue under a separate heading below.

31. In my judgment, there is no basis for the appellant to say that it was the Luxembourg Law, not the Merger Proposal, that effected the transfer of the HK Securities from the Merging Sub-Fund to the Receiving Sub-Fund.

32. First, in my view, the starting point of looking at the document must be the Merger Proposal itself. In it, it clearly states that for the transfer of the assets and liabilities of the Merging Sub-Fund to the Receiving Sub-Fund is to be done “in accordance with” (as contrast to “by operation of”) the terms of Article 1 (20)(a) of the Luxembourg Law: See paragraph under the heading of “I. Type of Merger” in the Merger Proposal[4].

33. It is to be noted that Article 1(20)(a) of the Luxembourg Law is only one of the three methods for a merger to take place under the Luxembourg Law: See Article 66. The other two methods are set out in Article 1(20)(b) and (c).

34. Thus, I find that the Merger Proposal did not provide the Merger was to be effected by operation of law, in particular the Luxembourg Law.

35. Second, if one looks at the actual wording employed under the Luxembourg Law, it is clear that the it did not support the appellant’s contention that it was the Luxembourg Law, rather than the Merger Proposal itself, which had effected the transfer.

36. Mr Mariani submits that Article 76 (1) was the provision which affected the transfer of the HK Securities[5].

37. With respect, I do not agree.

38. In my view, that particular Article only sets out the consequences of a merger that has been effected in accordance with Article 1(20)(a) of the Luxembourg Law, including the transfer of all assets and liabilities of the merging UCITS to the receiving UCITS.

39. Nothing in Article 76 (1) says that the transfer of assets in a merger is to be effected by operation of law.

40. I agree with Mr Chang for the respondent that the above interpretation of the Luxembourg Law is supported by the EU Directive, based on which of course the Luxembourg Law was enacted. In particular, I agree with Mr Chang of the following points he has made in his written submissions:-

(1)   Recital (28) provided that the EU Directive was concerned with merger techniques commonly used in the Member States.
(2)   Article 38 required Member States to allow for cross-border and domestic mergers in accordance with one or more of the merger techniques in Article 2(1)(p)(i)-(iii) of the EU Directive which later became Article 1(20)(a)-(c) of the Luxembourg Law.
(3)   It follows that the subject transfer of HK Securities was resulted from a merger technique introduced by the Luxembourg Law, rather than resulted by operation of any provisions of the Luxembourg Law. Put in another way, the Luxembourg Law operates to recognize the transfer of assets resulting from a merger under one of merger techniques introduced by the Luxembourg Law, rather than operates to transfer the assets under the merger in question.

41. In his submission, Mr Mariani makes the point that the opinions of the Luxembourg counsel should be accepted by the court without reservation. In particular, he submits that “(I)n the absence of alternative expert evidence, they should be taken by the Court as evidence of the true legal mechanism and effects of the Merger under its proper law.”[6]

42. With due respect, I cannot accept such bold submission.

43. In this regard, I agree with Mr Chang that the court does not simply accept any stated opinion based on foreign law as being correct, even when there may be no legal opinion contradicting it. The court is entitled to, and indeed must, look at the basis of the legal reasoning and the relevant foreign statutory provisions in determining what weight, if any, should be given to the expert opinion: Full Wisdom Holdings Ltd & Others v Traffic Stream Infrastructure Co Ltd & Others [2004] 2 HKLRD 1016 at [23] per Le Pichon JA. A foreign law expert is obliged to set out not only his conclusion, but also the source materials, legal principles, and importantly his process of reasoning leading to that conclusion: Newmark Capital Corp Ltd v Coffee Partners Ltd [2007] 1 HKLRD 718 at [47] per Recorder Paul Shieh SC.

44. I note here that the first opinion obtained by the appellant dated 5 November 2015 (“the First Opinion”) stated that “the Merger was effected in accordance with and by operation of Article 1(20)(a) of the Luxembourg Law[7]. However, this statement was made without any elaboration or explanation by the Luxembourg counsel. I also note that the First Opinion had identified Article 1(20)(a), rather than Article 76(1) now relies upon by the appellant, as the provision that purportedly effected the Merger. The apparent difference in such opinion again has not been explained.

45. I also agree with the respondent’s observation that, whilst the second opinion dated 19 April 2016 (“the Second Opinion”) stated that “it is the operation of Article 76 that effects the transfer of the assets of the merging fund to the merged fund”, there was no explanation as to why the First Opinion previously identified Article 1(20)(a) alone as the operating provision. More importantly, there was no elaboration in the Second Opinion as to why it was Article 76 of the Luxembourg Law, not the Merger Proposal, that effected the transfer of the HK Securities. In this connection, I agree with Mr Chang’s observation that just because Article 76 “tells you what happens when a merger is approved by the CSSF and so effected” does not logically mean the Merger was effected by that Article.

46. I further agree with the respondent that the Second Opinion barely asserted that the Merger Proposal, in and of itself, is “incapable of transferring property from the merging fund to the merged fund”. No basis for such assertion was made. No relevant Article in the Luxembourg Law or any relevant Luxembourg law was identified. I agree with Mr Chang’s submission that such assertion was also not supported by a plain reading of:-

(1)   the Merger Proposal itself;
(2)   Article 67(1) of the Luxembourg Law providing that a merger involving a Luxembourg UCITS is subject to prior authorization by the CSSF, rather than requiring the CSSF to effect the merger and the underlying transfer of assets;
(3)   the letter from the CSSF clearly stating that it had “no objection” to the implementation of the Merger under the Merger Proposal, rather than the CSSF itself effecting it; and
(4)   Article 76(1) of the Luxembourg Law.

47. Based on the above reasons, I reject the appellant’s contention (and the Luxembourg counsel’s opinions) that the transfer of the Merger was effected by operation of the Luxembourg Law.

The Substantive Issue

Was there a transfer under the SDO?

48. The appellant lays much emphasis on the purported difference between a “transfer” (which was said to occur a result of voluntary acts of the parties involved) and “transmission” (which was said to take place by operation of law): §30 of the appellant’s Skeleton Argument.

49. In my judgment, in the context of determining stamp duty under the SDO, any such difference, if any, is plainly irrelevant.

50. In my view, what the court has to look at in this case solely concerns with one single matter and one matter only, namely, whether the Merger Proposal is a transfer within Head 2(3) of the First Schedule of the SDO. With respect to the appellant’s solicitor, the use of the word “transmission” by the appellant in the present context is merely a red herring.

What does “transfer” mean?

51. Head 2(3) of the First Schedule to the SDO refers to “transfer” of Hong Kong stock. “Transfer” is not defined under the SDO, but I agree with the respondent that its natural and ordinary meaning is “one parting with something to another”: See for example:-

(1)   an mode of disposing of or parting with an asset or an interest in an asset: Black’s Law Dictionary (10^th ed);
(2)   the document by which property is made over by one person to another: Jowitt’s Dictionary of English Law (4^th ed); and
(3)   conveyance of property (eg of stocks or shares) from one person to another: Shorter Oxford English Dictionary (6^th ed).

52. In my view, the starting point of analysis must be the Merger Proposal itself, which expressly provided that on the effective date, all assets and liabilities of the Merging Sub-Fund including the HK Securities will be transferred to the Receiving Sub-Fund.

53. In this regard, I accept the respondent’s submission that the difference between “transfer” (by voluntary acts) or “transmission” (by operation of law), if any, and in other contexts (such as companies law or succession law), is wholly irrelevant to the present case which simply concerns whether the Merger Proposal is a transfer within Head 2(3) of the First Schedule of the SDO.

Change in beneficial ownership in the HK Securities

54. The question of whether there was any passing or change of beneficial interest in the HK Securities is relevant to both limbs of Head 2(3) of the First Schedule of the SDO:-

(1) For the first limb (ie a voluntary disposition inter vivos), there is an exception to stamp duty if no beneficial interest passes in the property conveyed or transferred: See s 27(5) of the SDO.
(2) For the second limb, the instrument in question must effectuate a transaction whereby the beneficial interest in a Hong Kong stock passes otherwise than on a sale and purchase.

55. Whilst framed as the appellant’s alternative argument, when contending that no beneficial interest in the HK Securities passed under the Merger Proposal, the appellant essentially relied on the same argument that the HK Securities passed under the Luxembourg Law, not the Merger Proposal: (See §48 of the appellant’s Skeleton Argument).

56. Given the court’s rejection of the appellant’s primary submissions, in my view, the alternative argument must naturally fall away.

57. Therefore, I make the following findings in this case:-

(1)   Prior to the Merger, the HK Securities were assets of the Merging Sub-Fund.
(2)   After the Merger, the Receiving Sub-Fund received all assets and liabilities of the Merging Sub-Fund, including the HK Securities which are held by a new custodian for the Receiving Sub-Fund as beneficial owner.
(3)   It was the Merger Proposal which implemented the Merger and, in turn, the transfer in beneficial interest in the HK Securities.

CONCLUSION

58. In the aforestated premises, I would answer the 3 questions set out in the Case Stated as follows:-

(1)   Whether the Merger Proposal is chargeable with stamp duty: Yes
(2)   In particular, whether pursuant to the Merger Proposal, there was a change in beneficial ownership of the HK Securities: Yes
(3)   If the answer to (l) is yes, the amount of stamp duty chargeable: $627,216 (the quantum being not in dispute).

59. I would therefore dismiss the appellant’s appeal with costs in favour of the respondent, such costs to be taxed if not agreed, with certificate for counsel.

60. Lastly, I would like to thank the advocates on both sides for their helpful assistance.

	(Andrew SY Li)
	District Judge

Mr Stefano Mariani, of Deacons for the appellant

Mr Jonathan Chang, instructed by Department of Justice, for the respondent

[1] Namely, Samba Capital and Investment Management Company, which is a company incorporated in Saudi Arabia

[2] Derived from Article 2(1)(p) of the Merger Directive

[3] Derived from Article 48(1) of the Merger Directive

[4] See [B/218] of hearing bundle.

[5] See §33 of appellant’s Skeleton Argument

[6] See §18 of appellant’s Skeleton Argument

[7] See [B/270] of hearing bundle

NOMURA FUNDS IRELAND PLC v. THE COLLECTOR OF STAMP REVENUE

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