WONG YU CHO ROLLY t/a MARCO POLO AND ANOTHER v. INLAND REVENUE DEPARTMENT

HCMP2032/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 2032 OF 2005

(ON AN INTENDED APPEAL FROM DCCJ 4492/2004)

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JUDGMENT

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Hon. Yuen JA:

1.  This is an application by the Plaintiff for leave to appeal from a decision of Judge Chow in the District Court given on 20 June 2005 in which he dismissed the Plaintiff's application to set aside default judgment entered in favour of the Defendant's Counterclaim in the sum of $831,600 together with interest and costs.

2.  The Plaintiff's application (made out of time) for leave to appeal was dismissed by Judge Chow on 9 September 2005.

3.  The Plaintiff then sought leave to appeal from the Court of Appeal.  The application was refused on paper by Hon. Cheung JA on 17 November 2005.  The Plaintiff has renewed his application before this court.

Plaintiff's tax position

4.  The brief background of this application is that the Plaintiff was the sole proprietor of certain businesses.  He failed to file tax returns for the years of assessment 1996/1997 and 1997/1998.  In the absence of returns, the Commissioner of Inland Revenue issued certain notices of assessment for those years. 

5.  The Plaintiff objected to those assessments in writing.  However,  since he failed to substantiate the objections by tax returns, his objections were invalid (s.64(1)(b) Inland Revenue Ordinance) and the Commissioner's assessments became final and conclusive (s.70 IRO). 

6.  The Commissioner therefore issued a Notice for Recovery of Tax in the total sum of $831,600 on 16 August 2004 which was served on the Plaintiff's banks (s.76 IRO).

Plaintiff's claim in DCCJ 4492/2004

7.  On 26 August 2004, the Plaintiff (acting in person) issued proceedings in the District Court against the Inland Revenue Department (DCCJ4492/2004) in which he sought the following relief:

- "compensation for the loss of my convenience, honour and right, the damage to my goodwill & reputation and violation to my privacy caused by the above-mentioned actions by the defendant; and

- withdraw the above notice of tax assessment and demand for tax for both companies; withdraw the Notice for Recovery of Tax issued on 16 August 2004 and restore all my rights to my bank accounts;

- costs;

- damages;

- special damages;

- further or other relief". 

Counterclaim

8.  On 24 September 2004, the Defendant filed a Defence and Counterclaim.  In the Counterclaim, the Defendant claimed tax in the total sums of $831,600, together with interest, further or other relief and costs.

9.  On 18 October 2004, the Defendant issued a notice to the Plaintiff that it would enter judgment in default of defence to the Counterclaim.

10.  The Plaintiff says that the next day, 19 October 2004, there was a threat to kidnap members of his family.

Summons for time to file Defence to Counterclaim

11.  On 20 October 2004, the Plaintiff issued a summons for an extension of time to file a Reply and Defence to Counterclaim within 14 days.

12.  The summons for time was heard before Master Ko in the District Court on 27 October 2004.  The Plaintiff appeared in person and Mr Ho Chi-sum, senior government counsel, appeared for the Defendant.  According to the master's notes, the Plaintiff asked for 28 days to file the Reply and Defence to Counterclaim to which Mr Ho made no objection.  The master therefore made an order in terms of the summons but giving the Plaintiff 28 days to file the Reply and Defence to Counterclaim instead of the 14 days originally sought in the summons.

Default judgement on Counterclaim

13.  No Reply and Defence to Counterclaim was filed within the 28 days which expired on 24 November 2004.

14.  On 30 December 2004, the Defendant entered judgment on the Counterclaim in default of defence.

Summons to set aside default judgment on Counterclaim

15.  On 17 January 2005, the Plaintiff issued a summons to set aside the default judgment. 

16.  The Plaintiff alleged in an affirmation filed on 17 January 2005 that at the court hearing on 27 October 2004 he had informed the master of the kidnap threat and he had also shown to Mr Ho outside the courtroom police statements regarding the kidnap threat.  The Plaintiff alleges he asked and Mr Ho orally agreed "to temporary set aside of DCCJ 4492 of 2004 until I give him further notice to proceed further with the matter ...".  The Plaintiff alleges that he had posted a letter the following day (28 October 2004) to Mr Ho confirming the agreement to "temporarily put aside this case until my further notice to you".  Accordingly the Plaintiff says the Defendant was not entitled to enter default judgment as that was in breach of the agreement.

17.  The Plaintiff also alleged in the affirmation that he had a strong case against the Counterclaim as he had on 15 April 2004 filed his tax returns for (amongst other things) the years in question (1996/1997, 1997/1998).  As the tax returns showed losses, he was not liable to pay any tax for the years in question.  

18.  Mr Ho filed an affirmation in opposition on 15 February 2005 exhibiting a transcript of the hearing before Master Ko which showed clearly that the Plaintiff had only asked for 28 days to file the Reply and Defence to Counterclaim, and that Mr Ho had in fact warned the Plaintiff that if the Defendant did not receive the pleading after 28 days, it would enter judgment.  Mr Ho denied having received the letter dated 28 October 2004.

19.  As for the tax position, a letter from the Defendant dated 13 September 2004 indicated that even as at that date, no tax returns for the years in question had been provided and certain documents allegedly sent by the Plaintiff had not been received.  As such the tax assessments became final and conclusive under s.70 IRO.

20.  The Plaintiff filed an affirmation in reply on 1 March 2005 in which he said, amongst other things, that the letter dated 28 October 2004 amounted to written notification to the Defendant that he needed further time, as he indicated at the hearing before the master the day before that he might do if there were any problems after he had made arrangements.

Judge Chow's decision not to set aside default judgment

21.  This was the state of the evidence before Judge Chow when he heard the Plaintiff's summons to set aside the default judgment.

22.  In a written decision handed down on 20 June 2005, the judge dismissed the summons.  It is this decision that is the subject of the present application for leave to appeal. 

Guiding principles

23.  In considering whether to grant leave to appeal, this court would of course have to consider the applicant's prospects of success on appeal.  The judge's decision dismissing the Plaintiff's summons to set aside default judgment was made in the exercise of his discretion.  The guidelines adopted by the court in appeals of this nature are well-established - an appellate court should not interfere with the exercise of a judge's discretion unless it is satisfied that the judge has erred in law or in principle, or if he has taken into account some matter which he should not have taken into account, or has left out of account some matter which he should have taken into account, or if the decision was so plainly wrong that it must have been reached by a faulty assessment of the weights of the different factors which have to be taken into account (cf  Alltrans Express Ltd v CVA Holdings Ltd [1984] 1 WLR 394, applied in Lakhan v Wu Wing Tat [1987] 3 HKC 54).

24.  Having read the decision handed down on 20 June 2005 together with the Plaintiff's affirmations filed thereafter, I can see no ground for interfering with the judge's exercise of his discretion.  He had set out the correct principles at para. 7 of the decision and I can see nothing that indicates that he had misapplied those principles. 

Regular judgment

25.  First, the default judgment entered was a regular judgment.  The transcript of the hearing before Master Ko showed clearly that the order made by the court on 27 October 2004 was for an extension of time of 28 days only. 

26.  The Plaintiff's attempt to get over this order was disingenuous.  In his affirmation in support of the summons to set aside, the impression given was that Mr Ho had orally agreed to an indefinite extension after reading the police statements and that his (the Plaintiff's) purported letter dated 28 October 2004 was confirmation of this agreement.  There was no reference at all to the master's order for an extension of 28 days only.   

27.  However the transcript proved that what had happened was that at the master's suggestion, the parties had conferred outside the court room during which Mr Ho was shown the police statements.  The parties then returned to the court.  The Plaintiff then asked for 28 days and Mr Ho made no objection but gave an express warning to the Plaintiff that judgment would be entered if the Defence to Counterclaim was not filed within that period.  The master then made the order giving an extension for 28 days only. 

28.  After being faced with the transcript of hearing, the Plaintiff tried to say that the agreement with Mr Ho was made after the court hearing.  That is inconceivable.  There was no reason why Mr Ho, after having agreed to an extension of 28 days only and given the warning in court that he did, would then without any change in circumstances suddenly agree immediately afterwards outside court to an indefinite extension.

29.  The Plaintiff also sought to rely on a passage in the transcript where he said that if after making arrangements, he encountered any problems, he would give written notice to "you" (in the plural, by which he must have meant the Defendant and the court) if he needed more time after the 28 days.  The Plaintiff says that the letter was such notification that he needed further time (i.e. beyond the 28 days). 

30.  That is also a non-runner.  The Plaintiff did not give any notice to the court.  Further the letter does not indicate what problems had emerged in the 1 day between 27 October and 28 October 2004 that caused the Plaintiff to ask for an indefinitie extension of time beyond the 28 days that he said the day before would be sufficient.  Nor was the letter written as a request to Mr Ho to consider whether he would agree to an indefinite extension.  It referred to an agreement that Mr Ho had allegedly already made. 

31.  Accordingly, the judge was right in holding that the default judgment was a regular judgment.

32.  Before this court, the Plaintiff also sought to argue that the Defendant had not given 48 hours notice before entering judgment in default.  Presumably he was referring to Order 19 rule 8A(1) of the Rules of the District Court which provides:

"(1) No party shall enter judgment under the provisions of this Order against a party who has filed an acknowledgment of service giving notice of intention to defend, or on a counterclaim, unless-  

(a) after such acknowledgment of service or counterclaim has been filed, and not less than 2 clear days before entering judgment, the party intending to enter judgment has served notice in writing of his intention to do so on the party against whom judgment is sought or, if that party is legally represented, on his solicitor".

33.  However, the requirement for 2 clear days notice does not apply because of the master's order made on 27 October 2004 extending time to file the Reply and Defence to Counterclaim.  Order 19 rule 8A(2) provides: 

"(2) This rule shall not apply where -

(a) the Court has made an order prescribing or extending the time for service of defence or defence to counterclaim".

No real prospect of success

34.  As the default judgment was entered regularly, the Plaintiff had to show a real prospect of success in defending the Counterclaim.  The judge's estimation of the Plaintiff's prospects of success was one that he was entitled to come to.  I have read the draft revised Reply and Defence to Counterclaim said to have been filed on 9 November 2005 and I can see no answer to the provisions of s.70 and s.75 of the IRO.  The Plaintiff has not even alleged in the revised Reply and Defence to Counterclaim that he had filed the necessary tax returns with the objections.  As such, the assessments became final and conclusive under s.70 and thus were "caught in the steely embrace of the prohibition" in s.75 (CIR v Lai Yin Ha trading as China Skin Specialist Clinic [1988] 2 HKTC 374, 380).

35.  In the circumstances, I see no ground for disturbing the judge's exercise of his discretion and I would refuse leave to appeal.

Hon. Tang JA:

36.  I agree.

Plaintiff in person, present