WONG WING WAH v. COLLECTOR OF STAMP DUTY

HCAL 1479/2020

[2021] HKCFI 11

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST NO 1479 OF 2020

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J U D G M E N T

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INTRODUCTION

1.  This is an application for leave to apply for judicial review of the assessment (“the Assessment”) of the Collector of Stamp Revenue dated 7 June 2016  in respect of a provisional agreement for sale and purchase dated 18 January 2013 (“the Agreement”) for a property known as Apartment No 12, 2/F, 55A Kwun Tong Road, Kowloon (“the Property”), which was purchased by the Applicant (“Madam Wong”), a Hong Kong permanent resident, as trustee for another Hong Kong permanent resident (“Mr Wong Tak Hung”).

2.  For reasons which I shall explain in this judgment, the application for leave to apply for judicial review is dismissed.

3.  In what follows, references to:

(1)     “Section”, or “s” shall be to the Stamp Duty Ordinance, Cap 117 (“the Ordinance”); and

(2)     “BL” shall be to the Basic Law of the HKSAR.

BACKGROUND FACTS

4.  The background facts of this matter have been set out in §§3 to 12 of the decision of H H Judge Kent Yee in DCSA 97/2016 dated 8 January 2020 (“the Decision”), which I gratefully adopt for the purpose of this judgment:

“[3] On 18 January 2013, Madam Wong signed the Agreement to purchase the Property at a consideration of HK$7,181,585. The Property is a residential property within the meaning of section 29A(1) of the Ordinance.

[4] The Agreement was stamped with ad valorem stamp duty of $269,310 under the then prevailing head 1(1A)(i) in the First Schedule to the Ordinance on 6 February 2013. Madam Wong raised no issue with the amount of ad valorem stamp duty payable on the Agreement.

[5] On 29 January 2013, Madam Wong executed a trust deed (‘the Deed’) in which she declared, among other matters, that the Property did belong to one Mr Wong. She merely held the Property for Mr Wong, who had paid and would pay all monies relating to the purchase and maintenance of the Property.

[6] On 21 February 2013, Madam Wong entered into a formal agreement for sale and purchase of the Property by incorporating the terms of the Agreement. The sale was completed on 30 April 2013.

[7] The HKSAR Government announced on 26 October 2012 proposed measures to address the overheated residential property market and sought to introduce, among other things, the Buyer’s Stamp Duty (‘BSD’) by amending the Ordinance through Stamp Duty (Amendment) Bill 2012 (‘the Bill’) which was subsequently published in the Gazette on 28 December 2012.

[8] In or about June 2016, Messrs Philip T.F. Wong & Co., the former solicitors for Madam Wong, supplied documentary evidence to prove the financial contribution of Mr Wong to the acquisition of the Property. The Collector, as a result, adjudicated that the Deed should not be chargeable with any stamp duty by virtue of section 27(5) of the Ordinance due to the lack of any beneficial interest thereby transferred.

[9] However, the Collector concluded that the Agreement was chargeable with BSD by virtue of section 29CB(1) of the Ordinance and the exemption under section 29CB(2)(a) of the Ordinance was not applicable because Madam Wong was not acting on her own behalf under the Agreement, but as trustee for and on behalf of Mr Wong.

[10] Section 29CB(1) of the Ordinance provides,

‘(1) Subject to the other provisions of this section, head 1(1C) in the First Schedule applies to a chargeable agreement for sale of any residential property executed on or after 27 October 2012.

(2) A chargeable agreement for sale is not chargeable with buyer’s stamp duty under head 1(1C) in the First Schedule if it is shown to the satisfaction of the Collector -

(a) that the purchaser, or each of the purchasers, under the agreement is a Hong Kong permanent resident acting on his or her own behalf’.

[11] On 7 June 2016, under section 13(3)(b) of the Ordinance, the Collector raised the Assessment in respect of the Agreement to HK$1,077,238 ($7,181,585 x 15%) with BSD being chargeable. Madam Wong has paid the said amount in full pending her appeal.

[12]     Madam Wong has filed an affirmation of Peter Fu to support her appeal. There, it is deposed to that Mr Wong is in fact a Hong Kong permanent resident (‘HKPR’). The Collector takes no issue with this assertion and this appeal is to be argued on that basis.”

PROCEDURAL HISTORY

5.  By a Notice of Appeal dated 6 July 2016, Madam Wong brought an appeal against the Assessment pursuant to s 14 of the Ordinance.

6.  On 30 June 2017, a Case Stated was signed by the Collector for the purpose of the appeal.

7.  The sole ground of the appeal, as advanced by Mr Lam on behalf of Madam Wong before the learned Judge, was -

“whether section 29CB(2)(a) of the Ordinance is against the Basic Law and hence unconstitutional in that it allows BSD to be levied on agreements even executed by a HKPR buyer as a nominee/trustee for a genuine HKPR buyer. Mr Lam argues that this provision infringes the constitutional rights to acquire property under Articles 6 and 105 of the Basic Law. The gravamen of his complaint is that the provision contravenes the stated objectives of the BSD and unjustifiably and disproportionally imposes a restriction on a HKPR buyer’s right to acquire property through a conventional and legitimate asset protection arrangement by way of trust.” (see §13 of the Decision)

8.  On 8 January 2020, the learned Judge dismissed Madam Wong’s appeal, essentially on the basis that the Government’s right to levy tax (including stamp duty) under BL 108 cannot be restricted or circumscribed by the rights protected under BL 6 and BL 105 (see §§30, 31 and 37 of the Decision).  In coming to that conclusion, the learned Judge relied upon the judgment of the Court of Appeal in Weson Investment Ltd v Commissioner of Inland Revenue [2007] 2 HKLRD 567, as did H H Judge Andrew Li in another stamp duty appeal raising the same issue (Wong Chak Sin v Collector of Stamp Revenue [2016] 12 HKLRD 981).

9.  On 15 May 2020, the learned Judge dismissed Madam Wong’s application for leave to appeal the Decision.

10.  On 27 May 2020, Madam Wong applied to the Court of Appeal for leave to appeal the Decision.

11.  At the hearing of the application for leave to appeal on 6 July 2020, the question was raised as to whether Madam Wong’s constitutional challenge to the Assessment should have been made in an application for judicial review, instead of in an appeal by way of case stated.  As I understand it, the Court of Appeal was of the view that judicial review was the appropriate, or more appropriate, procedure[1], and made the following order:

“The Application be adjourned pending for the Appellant to apply for Judicial Review on condition that the Appellant should file the Judicial Review leave application within 28 days from the date hereof”.

APPLICATION FOR JUDICIAL REVIEW

12.  On 14 July 2020, Madam Wong made the present application for leave to apply for judicial review.  In the Form 86, Madam Wong argues that BSD as applied to a HKPR trustee purchasing for a HKPR beneficiary “restricts the constitutionally protected right to acquire property under [BL 6 and BL 105] without justification and/or [is] disproportionate to the legitimate aim of the BSD, despite the HKSARG’s authority to legislate on tax as provided under [BL 108]” (see §9 of the Form 86).

13.  At §29 of the Form 86, Madam Wong further argues that even if BL 105 is not engaged, the exercise of the power under BL 108 to legislate on tax is irrational, Wednesbury unreasonable, arbitrary and/or abusive insofar as BSD is applied to HKPR trustees purchasing for HKPR beneficiaries.  At the hearing on 15 December 2020, Mr Lam confirmed that Madam Wong would not be relying on this ground of judicial review.  Thus, it will not be further considered in this judgment.

14.  The following provisions of the Basic Law are relevant for the present purpose:

“[6] The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law.

[105] The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property…

[108] … The Hong Kong Special Administrative Region shall, taking the low tax policy previously pursued in Hong Kong as reference, enact laws on its own concerning types of taxes, tax rates, tax reductions, allowances and exemptions, and other matters of taxation.”

AVAILABILITY OF JUDICIAL REVIEW

15.  On behalf of the Collector, Ms Chan argues that where there is an available statutory appeal procedure, the court should normally not allow the collateral process of judicial review to be used to attack an appealable decision.  This principle is well established in Hong Kong (see Canray International Ltd v Commissioner of Inland Revenue [2012] 4 HKLRD 792, at §25; Koo Ming Kwan v Commissioner of Inland Revenue (2014) 19 HKPLRR 498, at §11).  The fact that Madam Wong has in fact made use of the statutory appeal process to challenge the Assessment and failed in her appeal is an added reason why she should not be allowed to pursue the present application for judicial review.

16.  Nevertheless, having regarded to the order of the Court of Appeal referred to in §11 above, I shall assume in Madam Wong’s favour that her present challenge to the Assessment could, and properly should, be made by way of judicial review.  I should, however, caution that this decision should not be read as a relaxation of the principle that, save in exceptional circumstances, judicial review should normally be regarded as a remedy of last resort, and should not be used where there is an available statutory appeal procedure.  The present case should be regarded as an exceptional case.

DELAY IN MAKING THE APPLICATION

17.  On the footing that the present challenge to the Assessment could, and properly should, be made by way of judicial review, it is obvious that Madam Wong has been guilty of substantial delay in making the application for leave to apply for judicial review.  The Assessment was made on 7 June 2016.  The 3-month time limit for making an application for leave to apply for judicial review of the Assessment expired on 6 September 2016.  The present leave application was not made until 14 July 2020.

18.  Where there has been delay in applying for leave to apply for judicial review, the court’s approach in deciding whether to grant an extension of time to the applicant to make the application is well established (see AW v Director of Immigration [2016] 2 HKC 393).  The court should take into account the following non-exhaustive list of factors: (i) length of delay, (ii) explanation for the delay, (iii) merits of the substantive application, (iv) prejudice, and (v) whether any questions of general public importance are raised in the application.

(i)     Length of delay

19.  The delay in the present case is more 46 months.  As stated by the Court of Appeal in AW, at §37(3)(iii), “[w]here an applicant is many months out of time, leave may be refused ‘however strong the complaint might otherwise be’… An Applicant who sleeps upon his rights may be barred from pursuing them in judicial review even though he may have a meritorious case”.

(ii)     Explanation for the delay

20.  No good explanation for the delay has been given by Madam Wong.  The fact that she has adopted an inappropriate legal procedure (presumably under legal advice) to challenge the Assessment cannot be a good explanation for the delay.

(iii)    Merits

21.  In the context of an out-of-time application for leave to apply for judicial review, it is not sufficient for the applicant to demonstrate merely that the intended application for judicial review is reasonably arguable and has a realistic prospect of success.  That would be the minimum threshold which any applicant for leave to apply for judicial review has to overcome.  It is not, however, possible to lay down a precise standard or threshold in relation to the merits of an intended application for judicial review which an applicant must satisfy or pass before he may be granted an extension of time to apply for leave to apply for judicial review.  The court should look at the matter holistically, and take into account, amongst other things, the nature of the challenge, the questions raised, as well as the length of/explanation for the delay.

22.  There are two main issues which arise for consideration in relation to the merits of the intended application for judicial review in the present case, namely:

(1)     whether the rights under BL 6 and BL 105 are engaged; and

(2)     if “yes”, whether the restriction or interference with such rights is proportional.

23.  The particular “right” relied upon by Mr Lam is the right to the “acquisition” of property under BL 105.  He argues that the levying of BSD in the present case disproportionately interferes with or restricts Madam Wong’s right to acquire the Property.

24.  I shall deal with the proportionality issue first.  It is well established that 4 questions are involved (see Hysan Development Co Ltd v Town Planning Board (2016) 19 HKCFAR 372, at §§134 and 135), namely:

(1)     whether the impugned measure pursues a legitimate aim;

(2)     if so, whether it is rationally connected with advancing that aim;

(3)     whether the measure is no more than (reasonably) necessary for that purpose; and

(4)     whether a reasonable balance has been struck between the societal benefits of the encroachment and the inroad made into the constitutionally protected rights of the individual, asking in particular whether pursuit of the societal interest results in an unacceptably harsh burden on the individual.

25.  The aims sought to be advanced by the imposition of BSD are set out in §3 of the Legislative Council Brief on “Stamp Duty (Amendment) Bill 2012” prepared by the Transport and Housing Bureau dated December 2012, as follows:

(1)     “to prevent even further exuberance in the housing market which may pose significant risks to our macro economic and financial sector stability”;

(2)     “to ensure the healthy and stable development of the residential property market which is crucial to the sustainable development of Hong Kong as a whole”; and

(3)     “to accord priority to HKPR buyers over non-HKPR buyers under the current market situation”.

26.  The background leading to the imposition of BSD is well known.  It is succinctly stated in the Legislative Council Brief:

“[2] In the midst of a continuously exuberant state in the residential property market, arising from a tight supply of flats, extremely low interest rates and influx of capital from overseas, it is apparent that the [residential property] market is out of step with the real economy. Property prices are rising beyond the affordability of the general public and the risk of a property bubble has increased substantially.

[3] In view of the above, having consulted the Executive Council on 26 October 2012, the Financial Secretary announced on the same day the new demand-side management measures, i.e. the enhancement to the SSD and introduction of the BSD. The objectives of these measures are to prevent even further exuberance in the housing market which may pose significant risks to our macro economic and financial sector stability; to ensure the healthy and stable development of the residential property market which is crucial to the sustainable development of Hong Kong as a whole; and to accord priority to HKPR buyers over non-HKPR buyers under the current market situation” [emphasis added]

27.  In respect of the first step of the proportionality test, Mr Lam accepts that the aims mentioned in §25 above are legitimate aims.

28.  In respect of the second step of the proportionality test, whether a measure is rationally connected with advancing an aim is essentially a matter of logic and common sense.  In Bank Mellat v Her Majesty’s Treasury (No 2) [2014] AC 700, at §92, Lord Sumption JSC referred to the following statement of Wilson J in Lavigne v Ontario Public Service Employees Union [1991] 2 SCR 211, at 291 -

“The Oakes inquiry into ‘rational connection’ between objectives and means to attain them requires nothing more than showing that the legitimate and important goals of the legislature are logically furthered by the means government has chosen to adopt”,

and added the following -

“The words ‘furthered by’ point towards a causal test: a measure is rationally connected to its objective if its implementation can reasonably be expected to contribute towards the achievement of that objective…”

29.  For the purpose of the present discussion, it is important to note that according priority to HKPR buyers over non-HKPR buyers is only one of the legitimate aims sought to be pursued by the imposition of BSD.  The other aims go to the cooling of the exuberant housing market in Hong Kong.  It is obvious that the imposition of BSD would act as a disincentive for HKPR buyers who, for whatever reasons, do not wish to purchase in their own names but prefer to do so through HKPR trustees.  As mentioned in the Legislative Council Brief, the imposition of BSD is a “demand-side management measure”.  Its implementation would naturally suppress demand in the Hong Kong housing market.  In my view, the imposition of BSD is rationally connected to the first (if not also the second) of the three legitimate aims mentioned above.

30.  Lest it be thought that the practice of a HKPR trustee purchasing a residential property for a HKPR beneficiary is a rare occurrence, I should mention that there have recently been 11 similar applications for judicial review lodged with the High Court (HCAL 2155 to 2165/2020 [2]). In each of them, a HKPR trustee apparently purchased a residential property for Mr Wong Tak Hung, save that in one case (HCAL 2163/2020) the beneficial owner was a person called Fan Lai Chun.  The court does not have information as regards the purpose(s) behind these trust arrangements and shall not speculate into those matters.  It seems clear, however, that there are demands in the Hong Kong housing market by HKPR buyers seeking to purchase residential properties through HKPR trustees.

31.  Mr Lam does not take issue with the third or fourth steps of the proportionality test if the impugned measure is found by the court to be rationally connected with advancing the legitimate aims (or any of them).

32.  For the above reasons, I am of the view that the levying of BSD on Madam Wong in the circumstances of this case is justified even if her right to the acquisition of property protected by BL 6 and/or BL 105 is engaged.  This conclusion makes it unnecessary to consider the anterior question of whether any rights of Madam Wong under BL 6 and BL 105 are engaged.  For the sake of completeness, I shall state my views briefly:

(1)     In Weson, the Court of Appeal held that the right to compensation for lawful deprivation of property under BL 105 had no application to legitimate taxation, which was governed by BL 108, because when the Government imposed taxation, of necessity it deprived the taxpayer of his property without any right to compensation.  The detailed reasoning of the Court of Appeal for this holding can be found in the judgments of Rogers VP and Tang VP -

per Rogers VP

“[18] In my view Article 105 of the Basic Law has no application to legitimate taxation. Taxation is governed under Article 108 of the Basic Law which reads …

When the Government imposes tax on the individual, of necessity it deprives the individual of his property without any right to compensation. The 2 Articles are, as Mr Ismail, who appeared on behalf of the Commissioner, argued, mutually exclusive.

[19] In my view I can do no better than the cite from what was said by Mason CJ, Brennan J, Deane J and Gaudron J in the case of Australian Tape Manufacturers Association Ltd and others v The Commonwealth of Australia [1991-1993 177 CLR] 480 at 508 where it was said:

‘A law which is in truth the law imposing taxation escapes the requirement of s. 51(xxxi) of the Constitution that an ‘acquisition of property… for any purpose in respect of which the Parliament has power to make laws’ be ‘on just terms’. See, e.g., Federal Commissioner of Taxation v Barnes (1975), 133 CLR 483, at pp. 494-495; MacCormick v Federal Commissioner of Taxation (1984), 158 CLR 622, at pp. 638, 649:

‘The reason that this is so is that the relationship between the legislative powers conferred by s. 51(ii) and s. 51(xxxi) of the Constitution necessarily involves antinomy between what constitutes ‘taxation’ (for the purposes of s. 51(ii)) and what constitutes an ‘acquisition of the property’ (for the purposes of s. 51(xxxi)): of its nature, ‘taxation’ presupposes the absence of the kind of direct quid pro quo involved in the ‘just terms’ prescribed by s. 51(xxxi).’ See Federal Commissioner of Taxation v Clyne (1958), 100 CLR 246, at p. 263:

‘It follows that our conclusion that the ‘royalty’ purportedly imposed by s. 135zzp(1) is in truth a tax makes it strictly unnecessary that we consider whether, if it were not a tax, its imposition would be invalid as an unconstitutional ‘acquisition of property’ on other than just terms. It is, however, desirable that we indicate our view that it would.’ ’

[21] Mr Mok’s argument came down to the proposition that the power to tax given under Article 108 of the Basic Law, which included the power to require payment of tax in advance and then to refund that tax subsequent to a successful appeal should not impair the individual’s right to enjoyment of his property namely his money more than is necessary or proportionate.

[26]     Even if it were right to construe the power to tax given under Article 108 as being subject to an overriding requirement of proportionality stemming from Article 105, and I do not for one moment consider that is correct, the question of proportionality has to be considered in the context of the case as well as the provisions of the Ordinance…”

per Tang VP

“[79] Mr Mok did not submit in any depth on the meaning and effect of BL 105. In my opinion, BL 105 has no application. “Deprivation”, in BL 105, is used in the sense of expropriation, which is the expression used in its original Chinese. In my opinion, BL 105 concerns essentially a taking, as under eminent domain. I do not believe that suing for tax by action or for example, the recovery of a penalty or fine by action, even if it subsequently turned out to be wrong, would amount to or come within the scope of lawful expropriation under BL 105.

[82] … In any event, I do not believe that a genuine attempt to tax, even though it ultimately turned out to be wrong, amounted to lawful expropriation under BL 105.

[85] Mr Mok submitted that BL 105 and 108 should be read in the same way. In other words, the court must strike a fair balance, so that there must be a reasonable relationship of proportionality between the means employed and the aims pursued. He submitted that if one were to apply the proportionality test, section 79(1) whether read alone or considered together with section 71, failed the test. I do not believe it is right to read BL 105 and 108, as if the right of the HKSARG to tax has to strike such a fair balance. Rather, I am of the view that unless the taxation scheme cannot be regarded as genuine, but was in fact a disguised expropriation of property, BL 105 has no application. And the court has no power to interfere…”

(2)     In respect of Weson, Mr Lam makes four points.  First, he says that Weson is distinguishable because it concerns the right to compensation for lawful deprivation of property, whereas the present case concerns the right to acquire property.  I accept that this distinction may theoretically be drawn.  However, the reasoning of the Court of Appeal can at least be extended to the effect that the right of ownership and use of property protected by BL 6 and BL 105 are not engaged when the Government exercises the power to levy tax under BL 108.  It would, I consider, be drawing a very fine distinction to hold that the right to the acquisition of property also protected by BL 105 is nevertheless engaged in such circumstances.  In the interest of clarity and legal certainty, I consider that the Government’s exercise of the power to levy tax under BL 108 ought generally to be regarded as being outside the scope of BL 6 and BL 105 unless the taxation scheme is not genuine, because taxation, by its very nature, operates in an opposite direction to the protection of private property rights.

(3)     Second, Mr Lam says that there are cases in other jurisdictions to the effect that an express constitutional right to property can impose limits on the government’s power to levy tax.  It is with no disrespect that I do not propose to consider those cases in this judgment, because it is, I consider, my duty to follow any directly relevant authority of the Court of Appeal.

(4)     Third, Mr Lam says that Weson has been impliedly overruled by the Court of Final Appeal in Hysan.  Weson was a case in the list of authorities before the Court of Final Appeal in Hysan, but was not referred to in the judgment.  Hysan had nothing to do with the Government’s right to levy tax.  I do not consider Weson to have been impliedly overruled by the Court of Final Appeal in Hysan.

(5)     Fourth, Mr Lam says that Weson is wrongly decided.  Whether it is rightly or wrongly decided is not a matter of me, but for the higher courts.

(6)     In short, if it were necessary to do so, I would find that Madam Wong’s rights under BL 6 and BL 105 are not engaged in the present case.

(iv)    Prejudice

33.  The prejudice to Madam Wong if time is not extended, and the prejudice to the Collector if the challenge is allowed to proceed out of time, are purely monetary.  It has not been suggested by Ms Chan that there would be any detriment to public administration should the court grant an extension of time to Madam Wong to apply for leave to apply for judicial review.  Bearing in mind the relative position of Madam Wong and Collector, it is clear that the monetary prejudice would be more significant to Madam Wong than the Collector (representing the public revenue).

(v)     Question of general public importance

34.  The constitutional question raised in the present case is a question of some general importance.  This factor would tend to favour an extension of time being granted to Madam Wong.

35.  Having come to the view that Madam Wong’s intended application for judicial review of the Assessment is not reasonably arguable, and has no realistic prospect of success, it is clear that the court should not grant any extension of time for Madam Wong to apply for leave to apply for judicial review of the Assessment.

36.  Even if, contrary to my view, the intended application for judicial review of the Assessment is reasonably arguable, and has a realistic prospect of success, the merits are not strong.  The delay in the present case is very substantial, and there is no good explanation for the delay.  Notwithstanding the other two factors (prejudice and question of general public importance) being in Madam Wong’s favour, I would decline to exercise my discretion to grant any extension of time to Madam Wong to make the present application for leave to apply for judicial review of the Assessment in the overall circumstances of this case.

DISPOSITION

37.  The application for leave to apply for judicial review is dismissed.

38.  The principles governing an award of costs in an unsuccessful application for leave to apply for judicial review are well settled (see Leung Kwok Hung v President of the Legislative Council (No 2) (2014) 17 HKCFAR 841, at paragraph 17), and do not have to be repeated here.  I consider that Madam Wong should pay the costs of the Collector in this case, because (i) the Collector filed evidence and attended the hearing of the application for leave to apply for judicial review pursuant the court’s directions, and has provided substantial and helpful assistance to the court; (ii) Madam Wong has effectively had a hearing on the merits of her intended application for judicial review, and (iii) Madam Wong has substantially delayed in making the present application.  I make an order that Madam Wong shall pay the Collector’s costs of this application, including the costs of the hearing on 15 December 2020, to be taxed if not agreed.