CHENG YUNG CHING v. THE COMMISSIONER OF INLAND REVENUE DEPARTMENT

DCSA 31/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 31 OF 2015

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DECISION

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Factual Background

1.  On 4 December 2015, the Collector for Stamp Revenue issued an assessment to Mr Cheng Yung Ching, demanding payment of stamp duty in respect of a flat owned by Mr Cheng situated in Wilmer Street, Hong Kong.  Mr Cheng filed a notice of appeal with the court on 28 December 2015 in person.  The notice itself was dated 8 December 2015.

2.  Under section 14(1) of the Stamp Duty Ordinance, Cap 117, any person who wishes to appeal against an assessment should within one month of the assessment serve a notice on the registrar of the District Court and should also pay the stamp duty as assessed, subject to any allowance given under section 14(1A) by the Collector or any section 14(1B) court order. 

3.  No such allowance or order having been given, the deadline for Mr Cheng to serve the notice and pay the stamp duty fell on 3 January 2016.  The stamp duty was not paid then, ie, when the notice of appeal was filed.  It has remained unpaid up to today.  No application was made to the Collector under section 14(1A) to postpone the payment whether within the prescribed 14-day period or at all. Further, no application was made under section 14(5B) then to the court to extend the time for bringing an appeal in accordance with section 14(1) beyond the one-month period.

4.  Mr Cheng only made an application to that effect some eight and a half months later, on 20 September 2016, by way of summons.  In the same summons, he also asked for an order that he be allowed to bring the appeal without payment of the stamp duty or on security being given over his property to cover the stamp duty.

Issues

5.  There are two issues before the court this afternoon. 

6.  First, should Mr Cheng be allowed to bring and proceed with his appeal out of time under section 14(5B), ie, notwithstanding that he has failed to pay the stamp duty by 3 January 2016?  This issue arises because, technically speaking, Mr Cheng’s failure to pay means that his appeal, which was purportedly launched by way of his notice of appeal, has not been brought in accordance with section 14(1).

7.  Secondly, should the court accede to Mr Cheng’s application under section 14(1B) to postpone payment on the ground of hardship with or without security and if the court decides on the former, what form of security should be given? 

8.  It is necessary to set out the two subsections.  Section 14(5B) provides:-

“Where the court, on an application made by a person who is dissatisfied with an assessment of the Collector under section 13 or 47L, is satisfied that the person was prevented by illness or absence from Hong Kong or other reasonable cause from bringing an appeal within a period of 1 month from the date on which the assessment is made in accordance with subsection (1), the court may by order allow the appeal to be brought within such further period as it may consider appropriate.”

Section 14(1B) provides:-

“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... 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 … under subsection (1)(b) … 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 … that would, apart from this subsection, have to be paid before the appeal can be brought under subsection (1).”

9.  I think that the two issues are interrelated.  For instance, if Mr Cheng can demonstrate hardship and that non-payment of the stamp duty is reasonable in the circumstances, the court will rule in his favour on Issue 2.  And, on Issue 1, this would suggest that he might have been prevented from bringing the appeal in accordance with section 14(1) because of a “reasonable cause”.

10.  However, it does not necessarily follow that the court will also rule in his favour on Issue 1. This is because, as is made clear in Re Wan Wah Shing [2005] 4 HKLRD 674 (at paragraph 17), the court still retains a residual discretion on whether to allow the appeal to proceed.  In that regard, the court will take into account whether there has been any undue delay in taking out the section 14(5B) application.

11.  In the converse case where Mr Cheng fails to demonstrate hardship and hence the court refuses to postpone payment of the stamp duty, he fails on Issue 2.  But whether he should be allowed to pay out of time, ie, Issue 1, is still an independent issue to be resolved because he may rely, and in fact he does, on other ground, such as “absence from Hong Kong”.

12.  In the present case, I think it is more logical to deal with Issue 2 first because hardship may potentially amount to a “reasonable cause” which is something which the court needs to consider under Issue 1.

Issue 2 – Section 14(1B)

13.  I am not satisfied that on the evidence before me, Mr Cheng has discharged his burden of showing hardship if he is required to pay up the stamp duty before he is allowed to proceed with the appeal.  He contends that he does not have much cash, his business in the US is struggling, and since he does not reside in Hong Kong, it is difficult for him to raise finance in order to fund the payment of the stamp duty.

14.  There is some doubt as to his cash position as pointed out by the Collector.  But even if I accept all these allegations made by Mr Cheng at face value, the hard fact remains that Mr Cheng solely owns a flat in Hong Kong, free of any encumbrance, as confirmed by himself in his affirmation.

15.  We have no direct evidence on the current market value of the property.  But according to the assessment, as of December 2015, the market value of the property should have been around $4 million as agreed to by Mr Edward Lun, counsel for Mr Cheng.  Further, Mr Lun informed the court that the property has been let out and there should be some rental income from the property although the amount is not known.

16.  It should be noted that Mr Cheng has not deposed to the receipt of rental income in his affirmation when he was trying to depict his strained financial circumstances.

17.  In any event, I agree with the Collector’s submission that it is certainly open to Mr Cheng to raise finance, by way of overdraft or bank guarantee facility, on the property even when he lives and works in the US.  He may do so through his current Hong Kong solicitors.  Mr Cheng has not suggested that it is not feasible.  Mr Lun simply stated that it would be difficult for Mr Cheng to raise finance when he is out of Hong Kong, but there is no evidence that Mr Cheng had in fact tried but failed.  All Mr Cheng can say (and all he is really saying) is that it is inconvenient for him to do so. 

18.  But inconvenience is not hardship.  In the circumstances, he has not made out a proper case of hardship and I refuse his application under section 14(1B).

Issue 1 – Section 14(5B)

19.  Turning back to Issue 1, the authorities have made it clear that the time limit imposed in section 14(1) should be strictly adhered to and the statutory allowance for extension of time under section 14(5B) should be strictly construed – see, eg, Re Wan Wah Shing at paragraph 16 and Diamond Dragon Finance Company v The Collector of Stamp Revenue DCSA 4/2004, 2 April 2004 at paragraph 14.

20.  The court applies a three-stage approach and asks three questions.  (1) Has the intended appellant suffered from illness, been absent from Hong Kong or had other reasonable cause?  (2) If so, has the relevant factor or factors prevented him from bringing an appeal in accordance with section 14(1)?  (3) If so, should the court exercise its residual discretion in favour of the intended appellant?  See Re Wan Wah Shing at paragraph 17. 

21.  Given my ruling on Issue 2 above, the only ground based on which Mr Cheng may potentially seek to extend time is “absence from Hong Kong”.  Mr Cheng said in his affirmation that he had not returned to Hong Kong since 2013.  In his submissions, Mr Lun clarified that when Mr Cheng said he had filed the notice of appeal “in person” in December 2015, he did so in his own name but the filing was done by his solicitors’ clerk while he himself was physically in the US.  At that time, the solicitors were not yet formally instructed for the appeal.

22.  I accept that in December 2015, Mr Cheng was in fact not physically in Hong Kong. Therefore, the first question under the three-stage test is answered in the affirmative. 

23.  Nevertheless, Mr Lun confirmed at the hearing that the current solicitors of Mr Cheng had been acting for him in respect of the stamp duty assessment prior to the issuance of the demand note in December 2015.  In fact, he had been made aware of the assessment as early as 7 December 2015 by email through his Hong Kong solicitors.  Therefore, his absence from Hong Kong cannot be said to have prevented him from dealing with the appeal within the one-month timeframe, given that instructions could easily have been given to his Hong Kong solicitors for that purpose.

24.  It must be noted that the assessment was in fact sent to Mr Cheng’s Hong Kong solicitors in the first place in early December 2015.  Further, Mr Cheng was clearly in constant communication with his solicitors then.  It is not a case where the intended appellant is out of Hong Kong and therefore is not made aware of the assessment.  Here, Mr Cheng was aware of the assessment shortly after it was made.  He knew immediately that he would have difficulty to pay up.  He had legal representation all along.  In fact, according to his affirmation, he gave instructions to his solicitors at that time that he had financial difficulty to pay the stamp duty upon receiving the assessment from his solicitors. 

25.  In the event, Mr Cheng seems to have done nothing, whether it is to find the money to pay the stamp duty, to apply to the Collector for postponement under section 14(1A), or to apply to the court under section 14(1B). Therefore, I conclude that his absence from Hong Kong has not prevented Mr Cheng from proceeding with the appeal in accordance with section 14(1). 

26.  That would decide Issue 1 conclusively against Mr Cheng.  But I would also add that there is no explanation at all of the unduly long delay in taking out his current application.  The deadline fell on 3 January 2016 and Mr Cheng’s summons was filed some eight and a half months later.  There appeared to be some intermittent correspondence between the parties regarding the payment of stamp duty, but no consensus was reached as a result.

27.  From the correspondence exhibited to Mr Cheng’s affirmation, no serious efforts seem to have been put in by Mr Cheng’s side to push things along.  The first time he raised the issue with the Collector appeared to be around March 2016.  By then, it was already two months after the deadline.  The impression one gets is that he has simply let the matter drag on.  This would have been a factor that weighs heavily against Mr Cheng if the court had had to proceed to the third question of residual discretion. 

Conclusion

28.  For the above reasons, I dismiss Mr Cheng’s summons and he is not to be allowed to proceed further with his intended appeal.

(Discussion re costs)

29.  I make the following order on costs.  Mr Cheng do pay the costs of the summons to the Collector, summarily assessed at $14,047, payable within 28 days from today.