Reported Decision : 58 NSWLR 567 New South Wales Court of Appeal CITATION : Chief Commissioner of State Revenue v Dick Smith Electronic Holdings P/L [2003] NSWCA 265 HEARING DATE(S) : 15/09/03 JUDGMENT DATE : 10 October 2003 JUDGMENT OF : Meagher JA at 1; Sheller JA at 12; Davies AJA at 19 DECISION : Appeal dismissed with costs. CATCHWORDS : STAMP DUTIES: Dutiable value of share-sale transaction - Whether sale of shares ex-dividend - Value of consideration - Meaning of word 'consideration'. LEGISLATION CITED : Duties Act 1997 CASES CITED : Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW) (1957-8) 100 CLR 392 Chief Commissioner of State Revenue PARTIES : v Dick Smith Electronic Holdings Pty Ltd FILE NUMBER(S) : CA 40026 of 2003 COUNSEL : A: BA Coles QC, Dr HR Sorensen R: JW Durack SC, DJ Charles SOLICITORS : A: I V Knight, Crown Solicitor R: Gilbert & Tobin LOWER COURT Supreme Court - Equity Division JURISDICTION : LOWER COURT 4574 of 2002 FILE NUMBER(S) : LOWER COURT Gzell J JUDICIAL OFFICER : IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40026 of 2003 MEAGHER JA SHELLER JA DAVIES AJA Friday, 10 October 2003 CHIEF COMMISSIONER OF STATE REVENUE v DICK SMITH ELECTRONICS HOLDINGS PTY LTD (ACN 001 456 720) FACTS This was an appeal by the Chief Commissioner of State Revenue from a judgment of Gzell J, who decided that the consideration in a share transaction in which the respondent Company was involved was $88,555,552, not $114,139,649. The share transaction consisted of a sale of the shares in a company called InterTAN Australia Ltd. The two vendor companies were InterTAN Inc (a United States corporation) and a Canadian company, InterTAN Ltd. The respondent, Dick Smith Electronics Holdings Pty Ltd, was the purchaser. The sale agreement (in writing and dated 10 April 2001) provided that on completion, the vendors would sell, and the purchaser would buy the shares for the "Purchase Price" – which was an amount defined to mean $114,139,649, less the "Dividend Amount", which was defined as a sum not greater than $27,000,000 or "such other amount as the parties agree". The agreement further provided that prior to completion, the vendors would ensure that InterTAN Australia declared a dividend, payable on completion, equal in total to, and which would constitute, the (as-yet unascertained) "Dividend Amount". The agreement also provided that, on completion, the purchaser should "fund" InterTAN Australia to enable it to discharge any debt created by the declaration of the dividend. At completion, the Respondent paid to the vendors $88,555,552, which was the sum achieved by the subtraction of the "Dividend Amount" of $25,584,097 from the "Purchase Price" of $114,139,649. Immediately after the payment, the Respondent made the "funding" loan of $25,584,097 to InterTAN Australia. HELD, dismissing the appeal:– per Meagher JA: 1. The agreement made it clear that the sale was a sale at a price, not ascertainable at the date of the agreement, but which became ascertainable thereafter. It is also clear from the agreement that the sale was of the shares ex-dividend. That is what the parties bargained for, and that is what the respondent got. [6] 2. The "funding" was not part of the consideration for the acquisition of the shares. It was a separate transaction, between different parties. [8] 3. The locus classicus on the meaning of the word "consideration" is that of Dixon J in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 at 152, where it was taken to mean "the money or value passing which moves the conveyance or transfer". [9] 4. The parties to the instant transaction gave it the form of a sale at a price. There is nothing misleading about that form, which is the substance as well as the form of the transaction. Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW) (1957-58) 100 CLR 392 at 408-09, referred to. [10] per Sheller JA: 1. The shares were sold ex-dividend, after a declaration of dividend in favour of the vendors (as shareholders) had committed the company to pay the vendors a dividend equal to its retained earnings. [14] 2. The vendors as shareholders were entitled to the dividend from the company, and the loan by the purchaser was a loan to the company which could, in due course, be repaid to the company by the purchaser. The purchaser did not pay $25,584,097 to the vendors. The vendors became entitled to that amount from the company as shareholders of the company, not as vendors to the purchaser. [17] Davies AJA ( contra ): 1. The subject of the sale was not shares ex-dividend, which is why the shares were sold for $114,139,649. That was the value on which the vendors and the purchaser, who were at arms-length, agreed. [24] 2. The question is whether the $25,584,097 was part of the consideration for the dutiable transaction. [28 et seq.] 3. The "Purchase Price", as defined, was not the full consideration for the dutiable transaction. The consideration for the agreement included the purchaser's obligation to fund the dividend which the parties arranged to declare and pay. [31] ORDER That the appeal be dismissed with costs. IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40026 of 2003 MEAGHER JA SHELLER JA DAVIES AJA Friday, 10 October 2003 CHIEF COMMISSIONER OF STATE REVENUE v DICK SMITH ELECTRONICS HOLDINGS PTY LTD (ACN 001 456 720) Judgment 1 MEAGHER JA: This is an appeal by the Commissioner against a judgment by Gzell J who decided that the consideration in a share transaction in which the respondent was involved was $88,555,552 whereas the Commissioner submits it should be $114,139,649. 2 The share transaction was a sale of the shares in a company called InterTAN Australia Ltd. The two vendor companies were InterTAN Inc., a United States corporation, and InterTAN Canada Ltd, a Canadian company. The purchaser was the respondent. The shares were "dutiable property" within the meaning of the Duties Act 1997, and the sale was a "dutiable transaction". It is common ground that the transaction was subject to s. 21(1)(a) of the Act, which is in the following form: "The dutiable value of dutiable property that is subject to a dutiable transaction is the greater of: (a) the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration)..." 3 The agreement, which was in writing and dated 10 April 2001, by clause 5.1 provided that on completion the vendors would sell and the purchaser would purchase the shares for the "Purchase Price". That term was defined in clause 1.1 to mean $114,139,649 minus the "Dividend Amount". The term "Dividend Amount" was defined as: " Dividend Amount means all retained earnings (up to a maximum of $27,000,000) which the Company is able to pay on the Shares at Completion, or such other amount as the parties agree." Clause 4.4(a) provided that prior to completion the vendors would ensure that InterTan declared a dividend, payable on completion, on its ordinary shares equal, in total, to the Dividend Amount. 4 Clauses 7.7 and 7.8 of the Agreement were in the following form: "7.7 Discharge of Intra-Group Liabilities On Completion, immediately after payment of the Purchase Price, the Purchaser shall fund the Company so that the Company is able to discharge the debts created by the declaration of the dividend referred to in clause 4.4. Immediately following such funding, the parties shall procure that the Company pay that dividend, less any amount which the Company is required to withhold on account of the dividend not being fully franked. 7.8 Simultaneous completion Neither the Vendors nor the Purchaser need complete the sale of any Shares unless the sale of all the Shares is completed simultaneously. Neither Vendor is obliged to complete the sale of the Shares unless the Purchaser has performed, or is ready, willing and able to perform, its obligations under clause 7.7. 5 The dividend declared was for $25,584,097. The declaration of dividend presumably took place immediately before completion. At completion the respondent paid $88,555,552 (i.e. $114,139,649 minus $25,584,097) to the vendors. Immediately after the payment to the vendors, the respondent addressed itself to performance of its obligations under Clause 7.7. This it did by making a loan of $25,584,097 to the Company InterTAN Australia Ltd. 6 The respondent submits that the "consideration" which was dutiable under s. 21 of the Act was $88,555,552. The agreement makes it clear that the sale was a sale at a price, not certainly a price which was ascertainable at the date of the agreement, but on which became ascertainable thereafter. It is also clear from the terms of the agreement that the sale was of the shares ex dividend. That is what the parties bargained for, and that is what the respondent got. In return for payment to the vendors of the amount stipulated in the agreement it acquired the shares described in that agreement. It had never promised to pay $114,139,644, or any sum other than $88,555,552, for the shares. 7 It had never even promised, in the agreement, to lend to the company the sum of $25,584,097 or any other sum. It had promised the vendors that it would "fund" the payment of a dividend by InterTAN Australia Ltd. There were, no doubt, many ways such a "funding" could take place: lending money was but one of them. Nor was the amount stated with any precision. The obligation was "to fund" to the extent that it was necessary for the company to pay its dividend; presumably, if the company had reserves of its own sufficient to pay the dividend, it would have had no right to call on the respondent to fund anything. The respondent's obligation in this regard was to "fund" the dividend to the extent that it was necessary to do so. 8 Nor was the "funding" part of the consideration for the acquisition of the shares. It was a separate transaction, and between different parties. And, presumably, it left InterTAN Australia Ltd in a position where it had to repay to the Respondent the sum of $25,584,097. 9 There were, in fact, two transactions involved: a Sale of Shares ex dividend from the vendors to the respondent, and (as it turned out) a loan from the respondent to InterTan. As far as the sale is concerned, the consideration was $88,555,552. In this regard, the locus classicus on the meaning of the word "consideration" is that of Dixon J in Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143, who said (at 152): "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 of aspect of offer and acceptance. Under s 66 the consideration is rather the money or value passing which moves the conveyance or transfer." There is nothing in that magisterial utterance which would require the Court to uphold the appellant's submission. 10 Of more importance are the following dicta from the same judge in Davis Investments Pty Ltd v Commissioner of Stamp Duties (NSW) (1957-8) 100 CLR 392 at 408-9: "But here, for their own purposes the parties have given the transaction the form of the sale at a price. Had it not been for the situation occupied by the two companies one to another it might not have been possible, or at all events lawful, to transfer at such prices. In a practical sense doubtless the transaction was "moved" by that circumstance. But within the meaning of the words in s 66(3A) would the consideration moving the transfers – the consideration "upon" which the transfers are made – be anything but the price the parties chose to adopt? After all we are dealing with a transfer on sale. To go beyond the price may be to prefer realism to formal expression, but it means going to the circumstances warranting the parties in fixing the price they chose and that is not necessarily the same thing as consideration. It cannot be denied that it is an attractive view that the consideration in money or moneys worth "upon" which the transfers would be made consists of all the essential elements involved in the change of rights effected by the transfer, involving as it does the effectuation of pre-existing rights. But, notwithstanding some hesitation, I have reached the conclusion that, in the circumstances of the present case, it is the price which must for the purposes of stamp duty be regarded as the consideration upon which the transfers would be made." That citation seems to me particularly apt in the present circumstances. The parties to the instant transactions have given it the form of a sale at a price. There is nothing misleading about that form. It is the substance as well as the form of the transaction. One might ask the same question which Dixon CJ asked: how can the "consideration" be anything but the price which the parties chose to adopt? 11 The appeal should be dismissed with costs. 12 SHELLER JA: I have had the benefit of reading the judgments in draft prepared by Meagher JA and Davies AJA. Accordingly, I can state my reasons quite shortly. 13 The Share Acquisition Agreement dated 10 April 2001, which evidenced the transaction charged with the duty assessed by the Chief Commissioner, by cl 4.4(a) required the vendors before completion to ensure that the company, InterTAN Australia Limited, declare a dividend on its ordinary shares equal, in total, to what was called the "Dividend Amount". The Dividend Amount was defined to mean all retained earnings (up to a maximum of $27,000,000) which the company was able to pay on the shares at completion, or such other amount as the parties agreed. On completion the purchaser was obliged to pay the purchase price to or to the direction of the first vendor (cl 7.6). The purchase price was defined to be $114,139,649 minus the Dividend Amount. On completion, immediately after payment of the purchase price the purchaser was obliged to fund the company "so that the Company is able to discharge the debts created by the declaration of the dividend" (cl 7.7). Immediately following such funding, the parties agreed to procure that the company pay the dividend less any amount of withholding tax. 14 This short reference to these parts of the Share Acquisition Agreement demonstrates that the shares were sold ex-dividend, that is to say, after a declaration of dividend in favour of the vendors, as shareholders, had committed the company to pay the vendors a dividend equivalent to its retained earnings. The formula for determining the purchase price took exact account of this dividend. The amount of the declared dividend was $25,584,097. Application of the formula meant that the purchase price was $88,555,552. 15 So far this seems plain. But the Chief Commissioner argues that the consideration should not be the purchase price but the amount of $114,139,649. 16 The reasoning for this conclusion depends entirely upon the purchaser's agreement in cl 7.7 on completion and after payment of the purchase price to "fund the company so that the company is able to discharge the debts created by the declaration of the dividend". The method of funding was not specified. Nor was the amount of necessary funding specified. The thinking was quite simply that because the purchaser provided funding, in this case by making a loan, to the company of $25,584,097, in some way this amount became part of the consideration for the transaction. 17 With due respect this ignores the fact that the vendors as shareholders were entitled to the dividend from the company and that the loan by the purchaser was a loan to the company which could in due course, and no doubt was or will be, repaid by the company to the purchaser. The purchaser did not pay $25,584,097 to the vendors. The vendors became entitled to that amount from the company as shareholders of the company, not as vendors to the purchaser. The amount of the purchase price was dictated by the amount of the dividend not the amount of the funding provided. That the dividend and the loan were the same was coincidental and irrelevant to the effectuation of the transaction. 18 In my opinion, the appeal should be dismissed with costs. 19 DAVIES AJA: The issue in this appeal is the dutiable value of certain shares. Section 21 of the Duties Act, 1997 ("the Act") provides, inter alia:- 21(1) The dutiable value of dutiable property that is subject to a dutiable transaction is …: (a) the consideration (if any) for the dutiable transaction (being the amount of a monetary consideration or the value of a non-monetary consideration), … 20 My colleagues regard the sale of the subject shares as, effectively, a sale of shares ex-dividend. In my opinion, the subject sale was not a sale of shares ex-dividend for $88,555,552. It was a sale of shares for $114,139,649, payable in part by a sum of $88,555,552 and in part by a further sum of $25,584,097, funding the payment of a dividend to the vendors. Those particular sums were not specified in the agreement but that was the apportionment which in fact occurred. 21 Under s 8(1) of the Act, duty was charged, inter alia, on "(b)(i) an agreement for the sale or transfer of dutiable property". The subject agreement, dated 10 April 2001, was an agreement for the sale of shares. 22 Section 9 of the Act provided that the duty was to be charged as if such dutiable transaction were a transfer of dutiable property. For the purpose of applying that principle, s 9 set out a table which identified the dutiable transaction as the agreement for sale and the property transferred as the property agreed to be sold and it provided that the transfer occurred when the agreement was entered into. Accordingly, the duty was to be assessed on the footing that there was a transfer of the shares on 10 April 2001. 23 At that date, the shares were neither cum-dividend nor ex-dividend. No dividend had been declared and it could be inferred from the structure of the agreement that no dividend would be declared unless the purchaser funded the payment of a dividend. 24 In my opinion, that is the crux of the case. The shares that were agreed to be sold were the shares as at 10 April 2001. The subject of the sale was not shares ex-dividend. That is why the shares were sold for $114,139,649. That was the value on which the vendors and the purchaser, who were at arms-length, agreed. 25 Relevant provisions of the agreement are set out in the reasons for judgment of Meagher JA. I need not repeat them. The purchase price was defined as "$114,139,649.00 minus the Dividend Amount". The agreement then provided for the company in which the shares were held to declare a dividend one day prior to the completion date of the contract, with the dividend to be "payable on Completion". The vendors were to notify the purchaser of the amount of the dividend not less than two business days prior to completion. On completion, the following clause took effect:- "7.7 Discharge of Intra-Group Liabilities On Completion, immediately after payment of the Purchase Price, the Purchaser shall fund the Company so that the Company is able to discharge the debts created by the declaration of the dividend referred to in clause 4.4. Immediately following such funding, the parties shall procure that the Company pay that dividend , less any amount which the Company is required to withhold on account of the dividend not being fully franked." [p36 blue book] [Emphasis Added] Thus, the purchaser was to fund the dividend, which was to be paid on completion. 26 Completion took place at the offices of Allen Allen & Hemsley. It must have been a complex transaction for there were share transfers to be handed over and many matters to be put into effect. Officers and directors had to resign. New officers and directors had to be appointed. Resolutions effecting all these steps had to take place. The books and the records of the company and the control of its bank accounts had to be transferred. 27 At the completion, the subject shares were transferred to the purchaser and put into its name. The agreement provided that, on or before the completion, the purchaser should pay the sum of $88,555,552. That was done. The agreement also provided that the purchaser fund the dividend of $25,584,097. That was done. Both those sums passed to the vendors. The evidence does not show whether there was a direct transfer of the $25,584,097 from the purchaser to the vendors or whether the purchaser transferred its money to the company in which the shares were held and that company paid out the moneys by way of dividend to the vendors. However, it matters not how the transaction was effectuated. 28 Nor does it matter if part of the consideration was payable to a person other than the vendors. The question is whether the $25,584,097 was part of the consideration for the dutiable transaction, the agreement for the sale of the shares. 29 In or in association with the completion, the vendors received the two sums $88,555,552 and $25,584,097 totalling $114,139,649 and the purchaser paid those two sums. The consideration which moved the purchaser to perform its obligations under the agreement was the transfer of the shares. The consideration which moved the vendors to transfer the shares was the payment by the purchaser of the sum of $88,555,552 and the funding by the purchaser of the payment of the dividend of $25,584,097. 30 The funding of the dividend was a consideration in money or moneys worth and it cost the purchaser $25,584,097. The learned trial Judge considered that the purchaser received a contra of equal value, the debt or loan of $25,584,097, which was created in the books of the company in which the shares were held. However, the purchaser did not receive any benefit other than the transfer of the shares. The $25,584,097 was paid to or out to the vendors of the shares and the value of the company in which the shares were held was immediately diminished by that sum. 31 The agreement specified that, "Purchase Price means $114,139,649.00 minus the Dividend Amount". However, the purchase price, as defined, was not the full consideration for the dutiable transaction, the agreement for the sale of the shares. The consideration for the agreement included the purchaser's obligation to fund the dividend which the parties arranged to declare and pay. 32 In my opinion, the judgment below should be set aside and, in lieu of his Honour's orders, there should be an order that the plaintiff's objection to the assessment be dismissed with costs. The respondent should pay the costs of the appeal. ***** Last Modified: 10/31/2003 DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.