HO KIN TAI AND ANOTHER v. COLLECTOR OF STAMP REVENUE

DCSA 325/2019

[2019] HKDC 1310

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 325 OF 2019

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DECISION

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INTRODUCTION

1.  This is an application by the 1^st and 2^nd appellants (collectively referred to as “the appellants”) under section 14(1B) of the Stamp Duty Ordinance, Cap 117 (“the Ordinance”) for an order to allow the appeal of the appellants be brought without payment of the additional stamp duty.

BACKGROUND

2.  By a provisional agreement for sale and purchase dated 12 April 2013 (“the Provisional Agreement”), the 1^st appellant and his son, the 2^nd appellant herein, agreed to acquire a newly built flat in One West Kowloon, Kowloon (“the Property”) at a consideration of $9,818,000.

3.  On 16 April 2013, the appellants and the vendor agreed to execute an agreement for sale and purchase (“the Agreement”) which incorporated the terms of the Provisional Agreement. On 6 May 2013, the Agreement was stamped with ad valorem stamp duty (“AVD”) at Scale 2 rates in the amount of $368,175.

4.  It was later revealed that, at the time of acquiring the Property, the appellants owned more than one residential property in Hong Kong.  Accordingly, by a letter dated 15 February 2017, which is almost 4 years after the appellant paid the Scale 2 AVD, the respondent advised the appellants that the Agreement was chargeable with AVD at Scale 1 rates and that the refund mechanism under section 29DF of the Ordinance did not apply following the decision in Ho Kwok Tai v Collector of Stamp Revenue [2016] 5 HKLRD 713. The appellants were required to pay additional stamp duty (“ASD”) of $368,175.

5.  The appellants disagreed with the respondent’s view.  By a letter dated 20 March 2017, the 1^st appellant sought to distinguish his case with that of Ho Kwok Tai, expressing that in the present case, the 1^st and 2^nd appellant respectively owned one other property (ie the 1^st appellant owned Property A while the 2^nd appellant owned Property B) while Ho Kwok Tai concerned a couple who were joint owners of 2 original properties before purchasing a new property.

6.  After various correspondence, allegedly upon full consideration of the relevant circumstances, the respondent maintained his view and issued a notice of assessment to the appellants on 2 May 2019 demanding ASD of $368,175.

7.  On 16 May 2019, the 1^st appellant wrote to the respondent and inter alia, applied to postpone payment of the ASD pending the appeal.  However, besides the 1^st appellant’s personal undertaking, he did not provide any security for payment of the stamp duty.  Accordingly, the respondent informed the appellants by letter dated 22 May 2019 that no sufficient security as required under section 14(1A)(c) of the Ordinance was provided and the application was rejected.

8.  On 29 May 2019, the appellants lodged an appeal, together with the inter partes summons requesting for an order be granted under section 14(1B) of the Ordinance to allow the appeal of the appellants be brought without payment of the ASD. 

DISCUSSION

Issue in dispute

9.  The central issue in this application is whether this Court should accede to the appellants’ application under section 14(1B) of the Ordinance to postpone payment on the ground of hardship.

Provisions governing postponement of payment of ASD

10.  The starting point in considering the postpone payment of stamp duty can be found in section 14(1A):-

“(1A) Where—

(a) an application in writing made for the purposes of this subsection by the person liable for payment of the stamp duty payable under an assessment of the Collector under section 13 or 47L is received by the Collector within 14 days from the date on which the assessment is made;

(b) the person has stated in the application that he proposes to bring an appeal against the assessment under subsection (1); and

(c) security to the satisfaction of the Collector has been given for the payment of the stamp duty that will, by reason of the exercise of the power by the Collector under this subsection, be postponed,

the Collector may, by notice in writing served on the person, allow payment of the stamp duty payable under the assessment to be postponed for such period, to such extent and on such terms as the Collector may think fit.”

11.  Under the above provision, it is clearly stipulated that an application for the postponement of payment has to be made to the respondent in writing within 14 days of the assessment, and security has to be given to the satisfaction of the respondent for payment of the stamp duty.  In the present case, the appellants did not do so. 

12.  The present application is therefore made before this Court under section 14(1B) of the Ordinance, where it states:-

“(1B) Where the court, on an application made by the person intending to serve a notice under subsection (1), is satisfied that it would impose hardship on the person to require him to pay the stamp duty or the part of the stamp duty, as the case may be, under subsection (1)(b), it may by order allow the appeal to which the notice relates to be brought—

(a) without payment of the stamp duty or the part of the stamp duty, as the case may be, under subsection (1)(b), or only on payment of such part of the stamp duty or the part of the stamp duty, as the case may be, as the court may consider reasonable in the circumstances of the case; and

(b)  on security being given to the satisfaction of the court for the payment of the stamp duty or the part of the stamp duty, as the case may be, that would, apart from this subsection, have to be paid before the appeal can be brought under subsection (1).”

13.  In Wan Wah Shing v The Collector of Stamp Revenue [2005] 4 HKLRD 674, it was held that to meet the factors set out in section 14(1B) of the Ordinance, the applicant has to satisfy the court that (i) payment of stamp duty assessed would impose hardship on him; (ii) the non-payment of the stamp duty assessed was reasonable in all the circumstances of the case; and (iii) security to the court's satisfaction was given for the duty to be postponed.

14.  “Hardship” in section 14(1B) requires the court to recognize and take into account a party's subjective stance in forming an objective view in all the circumstances of the case as to whether hardship was made out. The onus is on the party asserting hardship to establish the same.

15.  Similar findings can be found in Cheng Yung Ching v. The Commissioner of Inland Revenue Department, DCSA 31/2015 (11 November 2016).  At §18, the court states that "inconvenience is not hardship", and held that the appellant is required to exhaust all means to raise the funds for stamp duty.

Appellant’s case

16.  In this application, the 1^st appellant acted in person while the 2^nd appellant was absent at the hearing.  The 1^st appellant was assisted in court by a friend Ms Chung who is a retired lawyer who used to work for the government.

17.  The appellants’ principal objection to the additional stamp duty imposed is that they did not co-own Property A and Property B.  The 1^st appellant asserts that he had never been the owner of Property B while his son, the 2^nd appellant, had never been the owner of Property A.  The 1^st appellant submits that the mere fact that they subsequently purchased the Property has no bearing on the beneficial ownership of Property A and Property B.  They say that there is a serious and genuine dispute on the interpretation and application of the laws.

18.  Further, the appellants submit that prior to the assessment of the stamp duty issued by the respondent, there were questions remained unanswered by the respondent despite their repeated requests in the correspondence, in particular, whether according to the respondent’s interpretation of the provisions in the Ordinance, if the appellants had each purchased a new property, whether they would both be exempted from paying double stamp duty.

19.  The appellants do not dispute the above cited provisions of the Ordinance apply in this case.  They also do not dispute the fact that they have not provided any security for the payment of the stamp duty.  They are seeking leave of this court to allow them to bring the appeal without payment of the stamp duty or security under section 14 (1B).

The appellant’s alleged hardship

20.  The appellants claim that the Property was purchased from the developer in April 2013 at a price of $9,818,000.  The developer allowed 5 months for the payment of the purchase price and provided the second mortgage for the Property.  The total mortgaged sums therefore amounted to just over HK$6 million in the appellants’ case.  According to the appellants, they continued to pay very “heavy interest” to the finance company under the second mortgage for more than 4 years (until 2017) when they could apply for a single mortgage from Dah Sing Bank to combine the previous two mortgages.

21.  The 1^st appellant claims that all the sale proceeds from the sale of Property A, which was the only property owned by him at the time, was applied as down payment for the purchase of the Property.  He claims that his son, the 2^nd appellant, had limited means and was joined as purchaser and borrower so that the mortgage period could be extended to 30 years. 

22.  The 1^st appellant has frankly admitted that he was too optimistic about his repayment ability which resulted in his serious financial difficulties in recent years.

23.  The appellant in his affirmation filed on 29 May 2019 deposed to the fact that he retired in 2018 and could not make ends meet since his retirement.  He had to apply for early retrieval of his MPF fund and it was used to pay off his various debts.  He filed a further affirmation on 24 June 2019 which contained a summary of the various loans taken out by him from different banks and finance institutions as well from his brother-in-law. The 1^st appellant also has to borrow heavily from his siblings and friends in order to repay his loans each month.  This leads to a deterioration of relationship between the 1^st appellant and his friends and family members and caused considerable stresses both on him and on his family.

24.  For example, in order to obtain a loan of $3 million from the bank, his brother-in-law has to pledge his property to a finance company and they have to pay a ridiculously high “agent fee” of $300,000 to the agent.  Half of the amount raised together with half of the agent fee acted as a loan to the 1^st appellant by his brother-in-law.

25.  In short, according to the summary of the table attached to the 2^nd affirmation of the 1^st appellant dated 24 June 2019, the total indebtedness of the 1^st appellant is over $8.5 million.  The total sum he has to repay each month is at $124,453, a sum he could hardly afford but struggles to pay each month by using fresh loans to cover previous loans.

The Court’s finding

26.  As stated above, “hardship” in section 14(1B) requires the court to recognize and take into account of a party's subjective stance in forming an objective view in all the circumstances of the case as to whether hardship was made out.  The onus is on the party asserting hardship to establish this to the court.

27.  I accept the 1^st appellant has been open and frank about his dire financial situation, which has largely been supported by documentary evidence disclosed by him in the affirmations.  While there are some gaps in the explanations as pointed out by Mr Jesse Yu, government counsel, who represents the respondent in the present appeal, they are, in my view, not fatal to the appellants’ case.  I accept the 1^st appellant’s claims.

28.  In my judgment, there is no doubt that the appellants have been experiencing and will experience great hardship in paying the stamp duty before he could bring the present appeal.  While one can say that such hardship may have been self-induced and due to bad financial planning, that is not the criteria I need to consider as a matter of law.

29.  I have to firstly consider the appellants’ subjective stance and then to form an objective view of whether, in all the circumstances of the case, the hardship is made out.

30.  First, on the subjective stance of the appellants.

31.  Having heard the 1^st appellant’s submissions in court and the evidence he has produced in the affirmations, I am satisfied that, on a balance of probabilities, both he and the 2^nd appellant have subjectively suffered from hardship.  Since his retirement in 2018, the 1^st appellant has not been receiving having any regular income.  The 2^nd appellant only has a modest income with hardly any real savings to speak of.  The original intention of the 1^st appellant was to help his son to purchase a better quality apartment.  However, it seems that he had badly misjudged his financial ability and found himself heavily in debt as a result. 

32.  The 1^st appellant has produced documents to support the loans he has taken out with various banks and financial institutes:-

(i)  $800,000 personal instalment loan with HSBC;

(ii)  “Credit Cash” with Manhattan Card (a division of the Standard Chartered Bank (Hong Kong) Limited) at $1,200,000;

(iii)  6 different “cash installment” agreements with BOC Credit Card (International) Limited in a total sum of $1,372,000; and

(iv)  a mortgage loan with Dah Sing Bank at $6,250,000.

33.  Besides the loans listed out above, the 1^st appellant also owes his brother-in-law Pak Kai Ming a sum of $1,650,000.  As stated, this is a personal loan which was raised by his brother-in-law pledging his own property to a finance company.  This has been verified by a statement signed by Mr Pak and the 1^st appellant as well as the loan agreement from the finance company.  The outstanding amount is at $380,000 as of the date of the hearing.

34.  I accept the 1^st appellant’s evidence that all the above loans are genuine (as they are well supported by documentary evidence) and that each month he has to repay a sum of $124,453 as repayments for the loans (including repayment of capital and interest).  This is on top of his own and his family’s living expenses.

35.  Mr Yu for the respondent while accepting that there has been no binding decision on this court with regards to what constitute to “hardship” in the present context, has referred me to a line of cases which illustrates the approach on how the court should deal with this issue.

36.  While Mr Yu is able to point out that there are “gaps” in the 1^st appellant’s evidence, for example, there was no mention of how the sales of proceeds from the sale of Property B was applied or the date or amount of how much he had retrieved from his MPF fund, I consider that they are peripheral matters which do not affect the quality of the appellants’ overall evidence. 

37.  In Wan Wah Shing v The Collector of Stamp Revenue [2005] 4 HKLRD 674, HH Judge M Ng (as The Hon Madam Justice M Ng then was) adopted the view of Lawton LJ in Rukat v Rukat [1975] 1 All ER 343 where the learned judge at p 351 remarked that “hardship” must be construed by the courts in a common-sense way, and the meaning which is put upon the word “hardship” should be such as would meet with the approval of ordinary sensible people. 

38.  I agree with such approach. 

39.  Applying a common sense approach and look at the matter objectively, in the particular circumstances of the case, I am convinced that the both 1^st and 2^nd appellants are in a dire financial situation where if they are required to pay the stamp duty or part of the stamp duty, it would impose undue hardship on both the appellants which would effectively kill off the appeal before they can bring the case for proper adjudication in front of the court.  This to me is not right and does not serve the overall justice of the case when the appellants may have a reasonably arguable case on appeal.   

CONCLUSION

40.  In the aforesaid premises, I am satisfied that it would impose hardship on the appellants if they are required to pay the stamp duty upfront before they are allowed to serve a notice under subsection 14(1B) for the appeal.  In the circumstances, I would exercise my discretion in favour of the appellants in this case and allow the appeal to which the notice relates to be brought without payment of the stamp duty (or any part thereof) or any security (as none could be provided by the appellants).

41.  I also order that the costs of the application be awarded in favour of the appellants, such costs to be taxed if not agreed.