The court concluded a Novation Agreement is a true novation, extinguishing the old contract and substituting a new one, and thus not subject to stamp duty as a transfer of property under the Stamp Act.

Introduction

[1] This is an appeal by Nike Global Trading B.V., Singapore Branch, ie the Plaintiff in the High Court (the Appellant), against the decision of the learned High Court Judge (HCJ) given on 6 November 2023 in dismissing the Plaintiff's appeal against the assessment of stamp duty (ad valorem duty) raised by the Pemungut Duti Setem, Malaysia (the Respondent).

[2] We heard the appeal on 19 May 2025 and reserved the same for decision. Having heard the appeals, examined the appeal records and considered the submissions by the parties, we decided to allow the Appellant's appeal. This is now the full grounds for our decision.

Background Facts

[3] On 1 May 2021, NIKE European Operations Netherlands B.V. (NEON) and NIKE Sales (Malaysia) Sdn Bhd (NIKE Malaysia) entered into an Intercompany Loan Agreement (Original Loan Agreement), under which NEON agreed to lend up to RM41,257,000.00 to NIKE Malaysia. The full loan amount was disbursed and was due for repayment five years later.

[4] On 17 December 2021, NEON, NIKE Malaysia, and the Appellant entered into a Novation Agreement dated 17 December 2021 (the Novation Agreement). Based on the Novation Agreement, all rights, obligations, duties and liabilities under the Original Loan Agreement are to be transferred from NEON to the Appellant. Notably, all parties involved in the Novation Agreement belong to the same corporate group.

[5] The Novation Agreement was presented to the Respondent through an online system, namely Stamp Assessment and Payment System (STAMPS), for the adjudication of stamp duty on 21 January 2022. Upon submission of the Novation Agreement for stamping, the Respondent assessed a stamp duty of RM1,716,004.00 on the Novation Agreement.

[6] Dissatisfied with the assessment, the Appellant filed an objection under s 38A of the Stamp Act 1949 (the Act) on 18 March 2022. The Respondent rejected the objection on 9 June 2022, maintaining the original assessment.

In The High Court

[7] Dissatisfied with the decision, the Appellant appealed against it to the High Court. As mentioned before, the learned HCJ dismissed the Appellant's appeal on the grounds which can be gleaned from the following paragraphs:

"[16] Upon the original lender fulfilling its obligation under the loan agreement by disbursing the loan, the purpose of the Novation Agreement is the transfer of the original lender's right to the plaintiff which is the right of repayment of the debt. Since the debt was transferred to the plaintiff, albeit without monetary consideration, is chargeable under Item 32(a) of the First Schedule as if it was a transfer or conveyance on sale by virtue of s 16(1).

[18] Hence, I agree with the Collector that there is a transfer or conveyance of a property that arises from the Novation Agreement which attracts stamp duty under 32(a) of the First Schedule."

[8] In gist, the learned HCJ dismissed the Appellant's appeal on the following grounds:

(a) The learned judge referred to the Federal Court decision in Toeh Kee Keong v. Tambun Mining Company Ltd ; (Tambun Mining) and concluded that novation is in effect a form of assignment.

(b) The High Court found that NEON had fully discharged its obligations under the Original Loan Agreement by disbursing the loan. Therefore, the purpose of the Novation Agreement is to transfer the original lender's right to the Appellant, which is the right of repayment of the debt.

(c) Since the debt was transferred to the Appellant without monetary consideration, it is chargeable under Item 32(a) of the First Schedule of the Act as if it were a transfer or conveyance on