Definition of Market Value

Recently, the High Court in Prima Cahaya Sdn Bhd v Pemungut Duti Setem (WA-24-40-07/2022) allowed the stamp duty appeal of Prima Chaya Sdn Bhd (“Taxpayer”) and held that, amongst others, market value means an amount that a willing seller and willing buyer are ready to transact at without any compulsion bearing in mind the assessed market value is a value after the pandemic, when businesses and general economy are struggling to pick up and normalize again.

The subject matter of this case is the market value of Menara Tulus (formerly the Royal Malaysian Customs Department’s headquarters at Putrajaya) (“Property”) – whether the market value of the Property is based on the forced sale value transacted or the valuation report prepared by the Jabatan Penilaian and Perkhidmatan Harta (“JPPH”).

The salient facts of Prima Cahaya (supra) are as follows:

a) TRW Boulevard Square (“Vendor”) had previously charged the Property to Ambank Islamic Berhad (“Ambank”) as security for Islamic financing facilities.

b) As the Vendor failed to fulfill its financial obligations, Ambank then placed the Property under receivership.

c) The appointed Receivers & Managers (“R&M”) then appointed a valuer to conduct a valuation on the distressed Property – the market value of the Property at RM170,000,000 and the forced sale value at RM130,000,000.

d) Upon the R&M application, the Kuala Lumpur High Court granted the order for sale by way of public auction at the reserve price of RM170,000,000.

e) However, the Property remained unsold albeit three rounds of public auction and the reserved price was revised downwards to RM137,700,000.

f) Subsequently, the R&M received a private offer of RM115,000,000 made by Bestinet Sdn Bhd (“Bestinet”) and the R&M agreed with the said private offer.

g) However, Bestinet was unable to complete the principal SPA, and thus Bestinet assigned and transferred all its rights, title, interest, and benefit to the Taxpayer by executing a deed of assignment.

h) Pursuant to the submission of instrument by the Taxpayer through its solicitors to the Stamp Office for adjudication, the Stamp Office then submitted an application to JPPH to conduct a valuation on the Property. JPPH valued the Property at RM227,250,000 (“JPPH’s Valuation).

i) Although the Taxpayer appealed twice against the JPPH’s Valuation which was adopted by the Stamp Office, the Stamp Office maintained its decision.

j) Being aggrieved, the Taxpayer paid the stamp duty under protest and appealed to the High Court.

The High Court allowed the Taxpayer’s appeal and held that, amongst others:

Market Value

a) The Stamp Act 1949 does not provide for any definition or interpretation of the word “market value’. Therefore, as per the decision of Suffian L. P (as he then was) in the case of Collector of Stamp Duties v. Ng Fah In & Ors [1981] 1 MLJ 288, the definition of market value in the Land Acquisition Act 1960 should be adopted, which reads as follows:

“Market Value is the estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion“

b) In Nanyang Manufacturing Co v. The Collector of Land Revenue, Johore [1954] 1 MLJ 69, it was found that the safest guide to determine the fair market value is the evidence of sales of the same land or similar land in the neighborhood after making due allowance for all the circumstances.

c) In assessing a valuation, the primary method should be the comparison method.

d) Notably, it is a requirement under the Land Acquisition Act 1960 that a comparable must be successfully transacted in order to be used in the comparison method.

JPPH’s Valuation

e) No informal or preliminary report was produced by the Stamp Office to support that JPPH’s Valuation was done before the Stamp Office issued the notice of assessment.

f) In fact, the JPPH’s valuation report was prepared after the event as JPPH’s valuer conducted the site visit after the Taxpayer appealed against the notice of assessment.

g) Thus, the JPPH’s valuation report is merely an after-the-fact attempt to justify the stamp duty charged.

h) Most of the comparables used by the JPPH are not good comparables as those comparables were not successfully transacted.

i) Comparables that were successfully transacted that used by the JPPH are still not good comparables as those comparables were transacted 7 years before the date of the Property being successfully transacted.

j) Adjustment of 10% for the time factor was unexplained by the JPPH.

k) Lastly, one of the comparables cannot be considered because it was transacted in 2011 (the peak of economy), therefore, it would be unfair or at the disadvantage of the Taxpayer for the valuation to not take into account the pandemic in late 2019 to 2021 in assessing the value of the Property.

l) By applying the comparison method, the Stamp Office is actually relying on unsuitable or inappropriate comparables.

Determination of Market Value

m) Practicality of the situation needs to be considered in determining the market value.

n) The Property was a distressed property that was placed under public auction at the reserved price of RM170,000,000 which is far lower than the purported ‘market value’ as determined by the Stamp Office or the JPPH.

o) It must be noted that there was neither an interested nor a willing buyer motivated enough to purchase it at the respective reserved prices (after three rounds of public auctions being held).

p) The valuation for the reserved price was conducted in 2018 prior to the Covid-19 pandemic.

q) It is noteworthy that a ‘reserve price’ is fixed with the court’s concurrence based on valuation and not some figure plucked out of the sky.

r) The agreed sale price of RM117,000,000.00 between a willing seller who was neither overly eager nor forced to sell at that price nor prepared to sell at a price not considered reasonable in the current market and a willing buyer motivated enough to purchase at that price was made at arm’s length as the parties are not related.

s) It is therefore illogical that the ‘market value’ as assessed by JPPH which is far higher than the amount anyone is willing to pay in an auction is reflective of a realistic ‘market value’, a willing buyer and willing seller is ready to transact at without any compulsion bearing in mind the ‘market value’ as assessed is a value after the pandemic, when businesses and general economy are struggling to pick up and normalize again.

Comments

This case is an interesting development in relation to ‘market value’ as the High Court in Prima Cahaya (supra) set out the test in determining ‘market value’ and analysed, amongst others, the comparison method in great length – which serves as a great guidance for the taxpayers at large. This case also reflects that our courts do take cognisance of the pandemic in determining ‘market value’. Notably, the High Court made it crystal clear that ‘market value’ means the sale price agreed by a willing seller who was neither overly eager nor forced to sell at that price nor prepared to sell at a price not considered reasonable in the current market and a willing buyer motivated enough to purchase at that price which was made at arm’s length as the parties are not related.

About the author

Desmond Liew Zhi Hong
Partner
Tax
Halim Hong & Quek
desmond.liew@hhq.com.my