TOUAX CONTAINER INVESTMENT LTD v. THE COMMISSIONER OF INLAND REVENUE

HCIA 1/2023

[2025] HKCFI 415

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

INLAND REVENUE APPEAL NO 1 OF 2023

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DECISION ON COSTS

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1.  By a summons of 13th September 2024 (“the Summons”), the Commissioner[1] seeks to vary the costs order nisi made in my judgment of 30th August 2024 (“the Judgment”)  that the Commissioner is to pay to the Taxpayer the costs of and occasioned by the appeal, to be taxed if not agreed (“the Costs Order Nisi”).  The Commissioner asks that the costs of the appeal be reserved pending the outcome of the remission ordered in paragraph 82 of the Judgment (and any appeal therefrom), or that there be no order as to costs.

2.  On the hearing of an appeal against a decision of the Board, the Court of First Instance may make any order as to costs that it thinks fit: s.69AA(1)(a)(iii)  IRO.

3.  The Commissioner says that:

3.1  the authorities do not provide any definitive guidance as to how the discretion as to costs should be exercised.  They suggest that possible orders to be made would include (a)  an order that costs follow the event as was the case with the Costs Order Nisi, (b)  an order that costs be reserved pending the outcome of the remitter, (c)  an order that costs, or the successful party’s costs, be in the cause of the remitter, and (d)  no order being made as to costs;

3.2  insofar as analogy is drawn with the “costs follows the event” requirement under RHC O.62 r.3(2), it should be borne in mind in the present case that:

3.2.1  the Taxpayer failed on Ground 1;

3.2.2  whilst the Taxpayer succeeded on Grounds 2, 3 and 4, the court was not able to say that the Board’s conclusion was contrary to the only true and reasonable one, and the assessments and additional assessments under challenge were not annulled;

3.2.3  the Board’s lack of factual findings in relation to Grounds 2, 3 and 4 was not attributable to the Commissioner;

3.3  it would be conceptually and practically be difficult to enforce an order that costs be in the cause of the remitter because of the interrelationship between Ground 1 (on which the Taxpayer failed)  and Grounds 2 to 4 (on which the Taxpayer succeeded), and between Grounds 2 to 4 themselves;

3.4  if the uncertainty consequent upon ordering that costs be reserved is undesirable, then no order should be made as to costs, to reflect in particular the facts that (a)  the Taxpayer lost on Ground 1 and (b)  whilst the Taxpayer succeeded on Grounds 2 to 4, the errors in the Decision were not attributable to the Commissioner.

4.  The Taxpayer says that:

4.1  it was the successful party in the appeal before me and should have these costs, leaving aside the issue of costs in the remitter;

4.2  the court not only found that the Board’s findings of fact were inadequate, but also that it had erred in its approach under s.14 IRO;

4.3  the Commissioner cannot be said to be blameless for the Board’s errors;

4.4  one can view the matter either on the basis that the appeal in HCIA 1/2023 in relation to Grounds 2 to 4 has concluded and there will be separate proceedings before the Board dealing with the remitter, or on the basis that the appeal in HCIA 1/2023 has not yet concluded and will be continued, “in a procedural sense”, in the remitter.  The better view is that the appeal has concluded and costs should follow the concluded event;

4.5  on the other hand, an appeal (from a decision of the Board)  which has been remitted back to the Board can also be regarded as “a corollary of the process of the High Court” and the court could therefore provide for the costs occasioned by an “appeal remitted to the Board”;

4.6  as an alternative to an immediate order for costs, the costs of both the appeal and the remitter should be in the cause of the remitter.

5.  I agree with Mr Ng that it is wrong to pose the question of whether the HCIA 1/2023 appeal is a “concluded” or “continuing” one, and that it is plain from the statutory wording that the costs arising on the remitter will fall to be dealt with by the Board under s.68(9)  IRO rather than by the court under s.69AA.  It is not necessary to go into these points further.  The issue is what costs order would be appropriate in HCIA 1/2023 given that although the appeal was allowed in relation to Grounds 2 to 4, I was unable to say that the Board’s conclusion was contrary to the only true and reasonable one, and the assessments, at this stage, remained undisturbed.

6.  The solicitors for the Taxpayer cited Ngai Lik Electronics Co Ltd v CIR, unreported, FACV 29/2008, 22^nd September 2009, in which Ribeiro PJ allowed the taxpayer’s appeal, annulling five additional assessments; ordered that the case be remitted to the Board, and that the Board be directed to remit the case to the Commissioner with the Board’s direction that fresh additional assessments be raised; and that costs be awarded to the appellant taxpayer.  Ribeiro PJ observed that “it is appropriate that the taxpayer should have the costs of the litigation properly undertaken to obtain that result [of annulment of the challenged assessments].  The costs of any contest regarding the matters remitted properly fall to be dealt with, if necessary, on a separate basis”.  However, unlike Ngai Lik Electronics Co Ltd, there has been no annulment of any of the assessments or additional assessments in the present case.  Furthermore, I did not determine that the Board’s conclusion that the Taxpayer conducted profit-producing transactions in Hong Kong was contrary to the only true and reasonable conclusion.  It remains to be seen whether the Taxpayer will ultimately be able to disturb the Board’s conclusion, and the assessments and additional assessments under challenge.

7.  In the circumstances of the present case, it seems to me that the fairest order would be for the costs of the appeal (in HCIA 1/2023)  to be the Taxpayer’s costs in the cause of the remitter.  By this, I mean that:

7.1  if the Taxpayer should be successful in the remitter in having any of the assessments or additional assessments reduced or annulled by the Board, it will be entitled to the costs of the appeal (in HCIA 1/2023), since it had to incur such costs to achieve the ultimate result;

7.2  even if the Taxpayer should not be successful in the remitter, it will not have to pay the costs of the appeal (in HCIA 1/2023), since it successfully established that the Decision was such as to justify a remitter, even though it ultimately was unsuccessful in challenging the assessments and additional assessments.

8.  Such an order would reflect the success which the Taxpayer has achieved at this stage of the proceedings but also recognise that the success is only to have the matter remitted for a fresh hearing for the matters identified, with the substantive question of whether the assessments and additional assessments are to be reduced or annulled being determined at that further hearing.

9.  As regards the Commissioner’s concerns over difficulty in enforcing such an order because of the interrelationship between Ground 1 and Grounds 2 to 4, or between Grounds 2 to 4 themselves, it seems to me that there should not be any real difficulty.  The remitter is confined to Grounds 2 to 4.  If the Taxpayer should succeed in having any of the assessments or additional assessments reduced or annulled at the fresh hearing before the Board, this will be because of the Taxpayer’s success in having the matter remitted to the Board in relation to those grounds. Furthermore, no matter whether the reduction or annulment stems from the matters arising under one, two or all three of Grounds 2 to 4, it will be the case that the Taxpayer had to have brought proceedings in HCIA 1/2023 to achieve the result.  The Board’s findings in relation to Ground 1 are not to be reopened, so that it should not be the case that the assessments or additional assessments will be reduced or annulled despite the Taxpayer’s failure in HCIA 1/2023 on Ground 1.

10.  I therefore order that the Costs Order Nisi be varied so that the costs of and occasioned by the appeal (in HCIA 1/2023)  are the Taxpayer’s costs in the cause of the remitter as ordered in paragraph 82 of the Judgment.

11.  I further make a costs order nisi that the costs of and occasioned by the Summons should be paid by the Taxpayer to the Commissioner, to be taxed at the same time as the costs of the appeal in HCIA 1/2023 (as provided for in paragraph 83 of the Judgment).