A novation agreement extinguishes the original contract and creates a new contract, which is not subject to ad valorem duty under the Stamp Act but incurs a nominal duty instead.

Introduction

[1] On 24 October 2024, I allowed the originating summons filed by the plaintiff, Gentari Sdn Bhd, against the assessment of stamp duty (ad valorem duty) by the Collector of Stamp Duty ("the Collector") in respect of a Novation Agreement dated 4 August 2023 ("the Novation Agreement"). The Novation Agreement was entered between Gentari Renewables Sdn Bhd ("GRSB" previously known as Petronas Power Sdn Bhd), Petroliam Nasional Berhad ("Petronas"), and the plaintiff. The stamp duty was assessed pursuant to s 17 and item 32(a) First Schedule of the Stamp Act 1949 to the tune of RM8,220,010.00.

[2] The plaintiff had appealed against the stamp duty imposed by the Collector under s 39(1) of the Stamp Act 1949 by way of this originating summons. I had allowed the appeal as follows:

(a) the assessment of stamp duty imposed in respect of the Novation Agreement was wrong in law;

(b) the stamp duty imposed by the Collector is cancelled; and

(c) the Collector imposes a stamp duty of RM10.00 under item 4 of the First Schedule.

[3] Hereinafter, all sections or schedules referred to in this judgment refer to the Stamp Act 1949 .

Background Facts

[4] This appeal is by way of a case stated. Pursuant to the Novation Agreement, the plaintiff agreed to accept the novation and transfer of Petronas rights, privileges, title, interest, obligations, and benefits under the shareholder's loan agreement. The consideration under the Novation Agreement is the outstanding loan amount by GRSB to Petronas under the shareholders' loan agreement, amounting to RM151,425,000.00. The Collector assessed stamp duty on an ad valorem basis under item 32(a) First Schedule. Hence, this appeal.

[5] The issue before me is whether the ad valorem duty chargeable under item 32(a) of the First Schedule on the Novation Agreement is correct.

The Law

[6] Item 32(a) of the First Schedule provides for the description of the instrument, i.e., conveyance, assignment, transfer, or absolute bill of sale, and the formula to calculate the proper stamp duty, which is as follows:

"On sale of any property (except stock, shares, marketable securities, and accounts receivables or book debts of the kind mentioned in paragraph (c))"

[7] Section 4(1) is the charging provision which provides that, subject to the Act and exemptions contained therein, the instruments specified in the First Schedule are chargeable with the stipulated duties. The assessing of the stamp duty was pursuant to s 17, which read as follows:

(1) Where any property is transferred:

(a) in consideration, wholly or in part, of any debt or of any stock or marketable security; or

(b) subject, either certainly or contingently, to the payment or transfer of any money or stock, whether being or constituting a charge or incumbrance upon the property or not,

the instrument of transfer shall be chargeable with ad valorem duty calculated at the rates specified under Item 32(a) or (aa) in the First Schedule upon either the value of the debt, stock or marketable security, as the case may be, or the market value of the property as on the date of execution, whichever be the greater.

(2) Where the consideration, or any part of the consideration, for a transfer of property consists of any security other than a marketable security, the instrument of transfer shall be chargeable with ad valorem duty calculated at the rates specified under Item 32(a) or (aa) in the First Schedule upon either the amount due upon the security for principal and interest or, in the case of a security given under a scheme of financing made according