DANIX LTD v. COLLECTOR OF STAMP REVENUE

DCSA 3/2012 & DCSA 4/2012

(Heard Together)

[2018] HKDC 136

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 3 OF 2012

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IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 4 OF 2012

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DECISION

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INTRODUCTION

1.  Stamp Duty Ordinance (“SDO”) s 14(2) provides:-

“The Collector shall upon being required to state and sign a case under subsection (1) state and sign the case and deliver the same to the person by whom it is required and the case may, within 7 days thereafter and after service thereof upon the Secretary for Justice, be set down by such person for hearing.” (Emphasis added)

2.  On 25 August 2017, in each of these appeals, the Collector of Stamp Revenue (“the Collector”) filed a summons seeking an order to strike out the appeal on the ground that the Appellant has not served the Case Stated on the Secretary of Justice (“SJ”) and set down the case for hearing within the 7-day period prescribed in SDO s 14(2).  This is the substantive hearing of the 2 striking-out summonses.

THE FACTS

3.  I would first outline the background facts in the 2 appeals, most of which are contained in the Case Stated prepared by the Collector in each appeal.

4.  The facts in DCSA 3/2012 as per the Case Stated therein are as follows:-

“2. The Appellant (“Danix”) was incorporated in Hong Kong as a private company on 3 August 2010. At all relevant times, Mr. YOUNG Tat-chiu, Thomas (“Mr. Young”) was the sole director and shareholder of [Danix]. ……

3. Bitaki Limited (“Bitaki”) was incorporated in Hong Kong as a private company on 29 October 1982. Since its incorporation, Mr. Young was the sole director of Bitaki. The issued share capital of Bitaki was $1,020,000 comprising 102,000 shares of $10 each. Mr. Young and Kornex Limited (“Kornex”) held 2,000 shares (2%) and 100,000 shares (98%) in Bitaki respectively. ……

4. Kornex was incorporated in Hong Kong as a private company on 30 October 2008. At all relevant times, Mr. Young was the sole director of Kornex. The issued share capital of Kornex was $100 comprising 100 shares of $1 each, with respect to which Mr. Young and Mr. YOUNG John Martin held 99 shares (99%) and 1 share (1%) respectively. ……

5. Suneasy Limited (“Suneasy”) was incorporated in Hong Kong as a private company on 30 November 2006. At all relevant times, Suneasy operated a branch business in the name of Taipan Management Company (“Taipan”). Mr. Young was the sole director and shareholder of Suneasy. ……

6. By a provisional agreement for sale and purchase dated 19 July 2010 (“the Provisional Agreement”), Bitaki agreed to purchase the Property^[1] from Capital Fur Company Limited (“Capital Fur”) at a consideration of $8,400,000. The Property was a non-residential property within the meaning of section 29A(1) of [the SDO]. The Provisional Agreement was mentioned in the Fifth Schedule to the formal agreement for sale and purchase (“the Agreement”) referred to in paragraph 7 below.

7. On 1 March 2011, Bitaki entered into the Agreement in the capacity as purchaser with Capital Fur. The Agreement incorporated the terms of the Provisional Agreement. ……

8. There was an annexure to the Agreement in which the terms and conditions formed part and parcel of the Agreement. The annexure provided that Capital Fur would lease the Property back from Bitaki at the monthly rent of $49,000 for two years from 1 April 2011 to 31 March 2013 (“the Leaseback Arrangement”).

9. By a provisional agreement for sale and purchase dated 17 March 2011 (“the Sub-sale Agreement”), Bitaki as confirmor agreed to sell the Property to [Danix] at a consideration of $2,280,000. Clause 8 of the Sub-sale Agreement provided that [Danix] agreed and had no objection to purchase the Property subject to the obligations and rights in an existing tenancy. ……

10. By [an assignment dated 31 march 2011 (“the Assignment”)], Capital Fur assigned the property direct to [Danix] at the request and by the direction of Bitaki as confirmor in consideration of, among others, $2,280,000 paid by [Danix] (“the Stated Consideration”) on 31 March 2011. ……

11. On behalf of [Danix], Messrs Yeung & Chan (“the Solicitors”) presented the Assignment to [the Collector] for stamping together with a stamping request form (“the Form”). In the Form, the Solicitors stated that an instruction for sale or a provisional agreement in relation to the Assignment (i.e. the Sub-sale Agreement) had been executed on 17 March 2011 (“the Relevant Date”) and the Relevant Date was preferred for valuation purposes. ……

12. Based on the Stated Consideration, the Assignment was stamped with stamp duty of $28,100 under head 1(1)(b) in the First Schedule to [the SDO].

13. [The Collector] requested the Commissioner of Rating and Valuation (“the Commissioner”) to assess the value of the Property as at the Relevant Date. In reply, the Commissioner was of the opinion that the value of the Property as at the Relevant Date was $10,000,000. ……

14. On behalf of [Danix], the Solicitors objected to the value assessed by the Commissioner in paragraph 13 above on the ground that the Property was sold to the Appellant subject to an arrangement (“the Arrangement”) whereby:

(a) the Property had been leased by Bitaki to Suneasy for 6 years from 31 March 2011 to 30 March 2017 at a monthly rent of $85,000;

(b) the total rent payable of $6,120,000 ($85,000 x 12 months x 6 years, hereinafter referred to as “the Sum”) had been paid in advance by Suneasy to Bitaki; and

(c) the Sum would not be reimbursed by Bitaki to the Appellant.

In the circumstances, the Solicitors contended that the Stated Consideration should represent the fair market value of the Property as at the Relevant Date. ……

15. In support of their contentions in paragraph 14 above, the Solicitors provided the following documents:

(a) A tenancy agreement dated 18 February 2011 between Bitaki as landlord and Suneasy as tenant on the terms referred to in paragraph 14(a) and (b) above (“the February Tenancy Agreement”). This agreement was stamped with stamp duty. ……

(b) An agreement dated 31 March 2011 between Bitaki and the Appellant in respect of the Arrangement. ……

16. Despite [the Collector]’s enquiries, Bitaki and Suneasy did not respond in respect of the property transactions referred to in paragraphs 6 to 10 above and the February Tenancy Agreement (“the Relevant Matters” collectively). ……

17. In response to [the Collector]’s enquiry on the Leaseback Arrangement, Capital Fur provided the following documents:

(a) A tenancy agreement dated 25 March 2011 (“the March Tenancy Agreement”) between Taipan who acted on behalf of [Danix] as landlord and Capital Fur as tenant on the terms referred to in paragraph 8 above. This agreement was stamped with stamp duty. ……

(b) A notice dated 30 April 2012 given by Capital Fur to Taipan informing that the March Tenancy Agreement would be terminated on 30 June 2012. ……

18. At the request of [the Collector], the Commissioner submitted a valuation report in respect of the Property. The valuation report stated, among others, the following:

(a) Having regard to the Leaseback Arrangement, the value of the Property as at the Relevant Date was $10,000,000.

(b) If the circumstances of the Arrangement were to be taken into account, the value of the Property as at the Relevant Date would be $8,000,000.

(c) The market rent of the Property as at 1 April 2011 was $21,500 per month.

……

19. After considering the circumstances in the preceding paragraphs, [the Collector] came to the following views:

(a) The Arrangement was artificial and had no commercial purpose other than for the avoidance of stamp duty, which should be disregarded in determining the value of the Property for stamp duty purposes.

(b) The Stated Consideration ($2,280,000, paragraph 10 above), which was equal to the consideration paid by Bitaki for acquiring the Property ($8,400,000, paragraph 6 above) net of the Sum ($6,120,000, paragraph 14(b) above), was considerably below the value of the Property assessed by the Commissioner as at the Relevant Date ($10,000,000, paragraph 18(a) above). By reason of the inadequacy of the Stated Consideration, the Assignment conferred a substantial benefit on the Appellant.

(c) Pursuant to section 27(4) of [the SDO], the Stated Consideration was deemed not to be valuable consideration and the Assignment was deemed to be a conveyance operating as a voluntary disposition inter vivos.

(d) Accordingly, the Assignment should be chargeable with stamp duty at the value of $10,000,000 under section 27(1) of [the SDO].

20. Under section 13(3)(b) of [the SDO], [the Collector] raised on the Appellant the Assessment in respect of the Assignment as follows:

	$
Stamp Duty Chargeable ($10,000,000 x 3.75%)	375,000
Less: Stamp Duty paid (paragraph 12 above)	28,100
Balance Payable	346,900

21. [Danix] lodged an appeal against the Assessment to the District Court[2].

22. [The Collector] requested [Danix] to provide its grounds of appeal and information in respect of the Relevant Matters.  In response, the Appellant stated its grounds of appeal but declined to furnish any information in respect of the Relevant Matters.  ……”

5.  The facts in DCSA 4/2012 as per the Case Stated therein are as follows:-

“2. [Sanforce] was incorporated in Hong Kong as a private company on 8 October 2009. At all relevant times, Mr. YOUNG Tat-chiu, Thomas (“Mr. Young”) and Kornex Limited (“Kornex”) were the sole director and sole shareholder of [Sanforce] respectively. ……

3. Kornex was incorporated in Hong Kong as a private company on 30 October 2008. At all relevant times, Mr. Young was the sole director of Kornex. The issued share capital of Kornex was $100 comprising 100 shares of $1 each, with respect to which Mr. Young and Mr. YOUNG John Martin held 99 shares (99%) and 1 share (1%) respectively. ……

4. Bitaki Limited (“Bitaki”) was incorporated in Hong Kong as a private company on 29 October 1982. Since its incorporation, Mr. Young was the sole director of Bitaki. The issued share capital of Bitaki was $1,020,000 comprising 102,000 shares of $10 each. Mr. Young and Kornex held 2,000 shares (2%) and 100,000 shares (98%) in Bitaki respectively. ……

5. Suneasy Limited (“Suneasy”) was incorporated in Hong Kong as a private company on 30 November 2006. At all relevant times, Mr. Young was the sole director and shareholder of Suneasy. ……

6. By a provisional agreement for sale and purchase dated 15 September 2010 (“the Provisional Agreement”), Ms. KWOK Sau-king (“Ms. Kwok”) agreed to purchase the Property^[3] from Goldentree Industrial Limited (“Goldentree”) at a consideration of $4,300,000. The Property was a non-residential property within the meaning of section 29A(1) of [the SDO]. The Provisional Agreement was mentioned in Part VIII of the Schedule to the formal agreement for sale and purchase referred to in paragraph 8 below (“the Agreement”).

7. By a provisional agreement for sale and purchase dated 19 September 2010 (“the First Sub-sale Agreement”), Ms. Kwok as confirmor agreed to sell the Property to Ms. WONG Chau-wan (“Ms. Wong”) or her nominee company at a consideration of $4,550,000. ……

8. On 22 November 2010, Ms. Kwok entered into the Agreement in the capacity as purchaser with Goldentree. The Agreement incorporated the terms of the Provisional Agreement. ……

9. On 31 December 2010, Ms. Wong issued a writ of summons (“the Writ”) against Ms. Kwok. In the Writ, Ms. Wong claimed that:

(a) Ms. Kwok had breached the First Sub-sale Agreement by failing to disclose the Provisional Agreement;

(b) the First Sub-sale Agreement had been terminated; and

(c) Ms. Wong was entitled to claim for, among others, the return of the deposits paid under the First Sub-Sale Agreement.

……

10. By an agreement for sub-sale and sub-purchase dated 10 March 2011 (“the Second Sub-sale Agreement”), Ms. Kwok as confirmor agreed to sell the Property to Bitaki at a consideration of $3,970,000. The Second Sub-sale Agreement was mentioned in recital (B) of the assignment referred to in paragraph 12 below.

11. By a provisional agreement for sale and purchase dated 17 March 2011 (“the Third Sub-sale Agreement”), Bitaki as confirmor agreed to sell the Property to [Sanforce] at a consideration of $1,990,000. Clause 8 of the Third Sub-sale Agreement provided that [Sanforce] agreed and had no objection to purchase the Property subject to the obligations and rights in an existing tenancy. ……

12. By [an assignment dated 20 january 2012 (“the Assignment”)], Goldentree assigned the Property direct to [Sanforce] at the request and by the direction of Ms. Kwok and Bitaki as confirmors in consideration of, among others, $1,990,000 paid by [Sanforce] to Bitaki (“the Stated Consideration”) on 18 March 2011. ……

13. On behalf of [Sanforce], Messrs. Yeung & Chan (“the Solicitors”) presented the Assignment to [the Collector] for stamping together with a stamping request form (“the Form”). In the Form, the Solicitors stated that an instruction for sale or a provisional agreement in relation to the Assignment (i.e. the Third Sub-sale Agreement) had been executed on 17 March 2011 (“the Relevant Date”) and the Relevant Date was preferred for valuation purposes. ……

14. Based on the Stated Consideration, the Assignment was stamped with duty of $100 under head 1(1)(a) in the First Schedule to the Ordinance.

15. [The Collector] requested the Commissioner of Rating and Valuation (“the Commissioner”) to assess the value of the Property as at the Relevant Date. In reply, the Commissioner was of the opinion that the value of the Property as at the Relevant Date was $4,600,000. ……

16. On behalf of [Sanforce], the Solicitors objected to the value assessed by the Commissioner in paragraph 15 above on the following grounds:

(a) The Property was sold to [Sanforce] subject to the litigation referred to in paragraph 9 above and also subject to a very short period for completion (less than a week).

(b) The sale of the Property was also subject to an arrangement (“the Arrangement”) whereby:

(i) the Property had been leased to Suneasy for 6 years from 18 March 2011 to 17 March 2017 at a monthly rent of $27,500;

(ii) the total rent payable of $1,980,000 ($27,500 x 12 months x 6 years, hereinafter referred to as “the Sum”) had been paid in advance by Suneasy to Bitaki; and

(iii) it was agreed between Bitaki and the Appellant that the Sum would not be reimbursed to the Appellant.

In the circumstances, the Solicitors contended that the Stated Consideration should represent the fair market value of the Property as at the Relevant Date. ……

17. In support of their contentions in paragraph 16(b) above, the Solicitors provided the following documents:

(a) A tenancy agreement dated 14 March 2011 between Bitaki and Suneasy as tenant on the terms referred to in paragraph 16(b)(i) and (ii) above (“the Tenancy Agreement”). The Tenancy Agreement was stamped with stamp duty of $3,297 under head 1(2)(b)(iv) in the First Schedule to the Ordinance. ……

(b) An agreement dated 18 March 2011 between Bitaki and [Sanforce] in respect of the Arrangement. ……

18. [The Collector] raised enquiries on Bitaki and Suneasy in respect of the property transactions referred to in paragraphs 10 to 12 above and the Tenancy Agreement (“the Relevant Matters” collectively). Bitaki and Suneasy did not reply to the enquiries. ……

19. At the request of [the Collector], the Commissioner submitted a valuation report in respect of the Property. The valuation report stated, among others, the following:

(a) On the basis of vacant possession, the value of the Property as at the Relevant Date was $4,600,000.

(b) If the circumstances of the Arrangement were to be taken into account, the value of the Property as at the Relevant Date would be $3,600,000.

(c) The market rent of the Property as at 1 April 2011 was $11,400 per month. ……

20. After considering the circumstances in the preceding paragraphs, [the Collector] came to the following views:

(a) The litigation referred to in paragraph 9 above would not have any effect on the value of the Property. Under the litigation, Ms. Wong only claimed for the return of the deposit paid to Ms. Kwok, not any interest in the Property.

(b) The Arrangement was artificial and had no commercial purpose other than for the avoidance of stamp duty, which should be disregarded in determining the value of the Property for stamp duty purposes.

(c) The Stated Consideration ($1,990,000, paragraph 12 above), which equals to the consideration paid by Bitaki for acquiring the Property ($3,970,000, paragraph 10 above) minus the Sum ($1,980,000, paragraph 16(b)(ii) above), was considerably below the value of the Property assessed by the Commissioner as at the Relevant Date ($4,600,000, paragraph 19(a) above). By reason of the inadequacy of the Stated Consideration, the Assignment conferred a substantial benefit on [Sanforce].

(d) Pursuant to section 27(4) of [the SDO], the Stated Consideration was deemed not to be valuable consideration and the Assignment was deemed to be a conveyance operating as a voluntary disposition inter vivos.

(e) Accordingly, the Assignment should be chargeable with stamp duty at the aforesaid value of the Property under section 27(1) of [the SDO].

21. Under section 13(3)(b) of [the SDO], [the Collector] raised on [Sanforce] the Assessment in respect of the Assignment as follows:

	$
Stamp Duty Chargeable ($4,600,000 x 3%)	138,000
Less: Stamp Duty paid (paragraph 14 above)	100
Balance Payable	137,900

……

22. [Sanforce] lodged an appeal against the Assessment to the District Court^[4]. ……

23. [The Collector] requested [Sanforce] to provide its grounds of appeal and information in respect of the Relevant Matters.  In response, [Sanforce] stated its grounds of appeal but declined to furnish any information in respect of the Relevant Matters.  ……”

6.  In each of these appeals, after the Appellant lodging the notice of appeal on 17 February 2012, there was correspondence passing between the Appellant and the Collector.  On or about 20 February 2014, the Collector sent the draft case stated to the Appellant for comments.  Thereafter, there was further correspondence passing between the parties.  On 18 February 2016, the Collector sent the finalized Case Stated to the Appellant, and the Appellant signed and return the reply slip acknowledging the receipt of the Case Stated on the same date.  Up to now, the Appellant has not yet served the Case Stated on SJ and set down the case for the hearing. Before the Collector taking out the 2 striking-out summonses, the Appellants have not made any attempt for seeking an extension of the 7-day period provided in SDO s 14(2).

7.  In the Case Stated in each appeal, the questions submitted for the opinion of the Court are as follows:-

(a)   whether the Assignment is chargeable with stamp duty in the amount as assessed by the Collector; and

(b)   if not, with what amount of stamp duty it is chargeable.

THE ISSUES

8.  In the directions hearing on 13 October 2017, after hearing submissions from the parties, I directed that the issues to be determined in the substantive hearing of the 2 striking-out summonses are those set forth below:-

(a)   whether this court has jurisdiction to extend the 7-day period set out in SDO s 14(2);

(b)   if no, whether this court has jurisdiction to strike out these appeals;

(c)   if the court has the jurisdiction to extend the 7-day period SDO s 14(2), whether the court should exercise the discretion to extend time; and

(d)   the merits of the appeal.

9.  The parties have filed skeleton submissions before the substantive hearing.  After reading these skeleton submissions, I directed the parties to read the following cases and address me on these cases in the substantive hearing:-

(a)   Lee Yee Shing Jacky v Inland Revenue Board of Review^[5];

(b)   Metropolitan Finance Corporation Ltd v Lau Chi Shing^[6];

(c)   方漢標 v 陳德偉 ^[7];

(d)   Super Keen Investments Ltd v Global Time Investments Ltd ^[8];

(e)   Karex (Hong Kong) Ltd v Fortune Talent Development ^[9];

(f)   Lee Fu Wing v Yan Po Ting Paul ^[10];

(g)   Smart Max Enterprise Ltd v Speedy Way Ltd ^[11];

ANY JURISDICITION TO EXTEND TIME?

The Collector’s submissions

10.  Mr Paul Leung, counsel for the Collector, submits that the court has no jurisdiction to extend the 7-day period in SDO s 14(2).  Mr Leung submits that the authority directly on the point is the Court of Appeal’s decision in Bangkok Capital Antique Co Ltd v The Collector of Stamp Revenue^[12].

11.  Mr Leung submits that Harvest Sheen Ltd v The Collector of Stamp Revenue^[13], a case relied upon by the Appellants in these 2 appeals, is not relevant for the issue in that case is the affordability of a duty-payer to pay the assessed duty.  Payment of any stamp duty assessed is not a requirement in SDO s 14(2) at all.

The Appellants’ submissions

12.  Mr Joseph Lee, solicitor for the Appellants in these 2 appeals, submits that if the 7-day period in SDO s 14(2) is an absolute time limit and the court has no jurisdiction to grant any extension of time, that would contravene Article 10 of the Hong Kong Bill of Rights (“HKBOR”) and Article 35 of the Basic Law (“BL”).  Mr Lee does not dispute that the Court of Appeal in Bangkok Capital Antique has held that the court has no jurisdiction to extend the 7-day period in SDO s 14(2). However, Mr Lee submits that Bangkok Capital Antique was decided in 1984, and at that time the HKBOR and the BL have not been enacted.  The effect of Bangkok Capital Antique must now be re-examined in the light of the HKBOR and the BL.

13.  Mr Lee’s submissions on HKBOR Article 10 are as follows:-

(a)   HKBOR Article 10 provides:

“All persons shall be equal before the courts and tribunals. In the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law.”

(b)   In each of these appeals, the Appellant has filed a notice of appeal to this court on 17 February 2012 and a case number was given to the appeal. No doubt that a “suit at law” is involved.

(c)   In Kwan Kong Co Ltd v Town Planning Board^[14], Waung J said:

“What Article 10 is seeking to do is that in respect of already pending proceedings, the article describes how to achieve equality before the court through these procedural guarantees. It is a procedural provision regarding court proceedings to ensure that it is a fair court giving equal treatment to everyone.”

(d)   The treatment given to the Collector and the treatment given to the duty-payer under SDO s 14(2) are unequal. Under that section, the Collector can take whatever time he wishes to take in the preparation of the case stated, but the duty-payer must set the appeal case down for hearing within the 7-day period, and the 7-day period cannot be extended under any circumstances.

(e)   The absolute time requirement imposed on the duty-payer lacks justification and impedes the duty-payer’s right of access to the court.

14.  Mr Lee further relies upon BL Article 35 and submits:-

(a)   BL Article 35 provides:

“Hong Kong residents shall have the right to confidential legal advice, access to the Courts …… and to judicial remedies.”

(b)   Under BL Article 11, no law enacted by the legislature of the Hong Kong SAR shall contravene BL.

(c)   The absolute 7-day time limit in SDO s 14(2) creates an unnecessary and harsh hurdle impeding a duty-payer’s right of access to the court.

15.  Mr Lee refers me to Harvest Sheen, in which Barnett J held that the condition in the old version of SDO s 14(1) requiring the duty-payer to pay up the assessed duty of the stamp duty before he could lodge an appeal (“the full-payment requirement”) was inconsistent with HKBOR Article 10.  In that case, the court granted an order of certiori to quash the decision of the Collector.  As a result of the decision in Harvest Sheen, amendments to SDO s 14(1) were introduced in 1998.  As a result of these amendments, the court now has jurisdiction to relax the full-payment requirement^[15] and extend the 1-month period^[16] set out in SDO s 14(1) in appropriate circumstances.

16.  Mr Lee submits, in the light of Harvest Sheen, since the 7-day restriction in SDO s 14(2) is incompatible with HKBOR Article 10 and BL Article 35, this court should have jurisdiction to extend the 7-day period in order to protect the rights enshrined in HKBOR and BL.

My view

17.  In my view, the answers to the Appellants’ challenges can be found in the Court of First Instance’s and the Court of Appeal’s decisions in Lee Yee Shing Jacky.

18.  In Lee Yee Shing Jacky, Lam J (as he then was) held that tax matters are not within the ambit of HKBOR Article 10.  His Lordship said^[17]:-

“51. Though [counsel for the taxpayer] referred to Article 10 of the Hong Kong Bill of Rights in his written submissions, counsel candidly admitted in his oral submissions that according to European authorities tax assessment is not within the scope of Article 6 of the European Convention for the Protection of Human Rights and Fundamental Freedoms, see Ferrazzini v Italy (2002) 34 EHRR 45; Emesa Sugar NV v Netherlands (13/1/2005 ECtHR); Viktor Ketko v Ukraine (3/4/2006 ECtHR) and Impar v Lithuania (5/4/2010 ECtHR). At para. 21 of the last decision, the principle was summarized,

“The Court has consistently held that, generally, tax disputes fall outside the scope of ‘civil rights and obligations’ under Article 6 of the convention, despite the pecuniary effects which they necessarily produce for the taxpayer.”

52. The rationale for that was discussed at length in Ferrazzini v Italy (2002) 34 EHRR 45 paras. 20 to 31. The European Court regarded tax matters as part of the hard core of public-authority prerogatives with the public nature of the relationship between the taxpayer and the tax authority remaining predominant. Thus it falls outside the scope of civil rights and obligations.

53. [Counsel] submitted that such rationale stemmed from the distinction in the European countries between civil law and public law. Counsel also referred to the difference in wordings between our Article 10 and their Article 6.

54. However, it has been held by Judge Cheung (as Cheung JA then was) in Commissioner of Inland Revenue v Lee Lai-ping (1993) 3 HKPLR 141 that the expression ‘rights and obligations in a suit at law’ in our Article 10 has the same meaning as the expression ‘civil rights and obligations’ in Article 6 of the European Convention. At p. 152, after considering the European jurisprudence and the submission that different interpretation should be given to our Article 10, the Court held that assessment of profit tax does not involve any determination of private right. Rather it is a matter arising out of an administrative act.

55. I respectfully agree with Judge Cheung and hold that tax matters fall outside the scope of Article 10 of our Bill of Rights. But it does not mean that the process of assessment of tax needs not be fair. As explained, the process is subject to the supervision of the court by means of judicial review and the court can intervene if the process is unfair. There is simply no need to resort to any constitutional underpinning for what I would call a traditional judicial review challenge based on unfairness in an administrative process. However, if there is no unfairness in the process, Article 10 cannot provide a basis for any constitutional challenge in relation to the process of tax assessment.” (Emphasis added)

19.  I respectfully agree. Accordingly, the Appellants’ challenge based upon HKBOR Article 10 cannot succeed.  I further observe that the comparison between no time limit for the preparation of the case stated by the Collector and the 7-day limit for serving the case stated on SJ and for setting down the case for hearing by the duty-payer is not a like-for-like and fair comparison.  The Collector has to set out all the relevant facts and identify the questions to be determined by the court in the case stated, and would need to seek comments from the duty-payer in this process.  No doubt this would be a time consuming exercise. On the other hand, serving the case stated on SJ and setting down the case for hearing are relatively simple matters.  All that the duty-payer has to do is to send the case stated to SJ and notify the court to set the case down for hearing.  In my view, there is no inequality in SDO s 14(2).

20.  Although the Appellants cannot successfully challenge the 7-day limit in SDO s 14(2) by relying upon HKBOR Article 10, I have to say that prima facie the Appellants’ argument that the absolute 7-day limit in SDO s 14(2) has infringed the right to have access to the courts guaranteed by BL Article 35 has its attractiveness.  There can be cases in which the delay is excusable and the duty-payer has a meritorious appeal.  If the duty-payer has no right to come to court to seek reliefs in these circumstances, the constitutional right enshrined in Basic Law Article 35 may be infringed.

21.  The answer to this can also be found in the Lee Yee Shing Jacky case.  In that case, the issue in the Court of Appeal is whether the appeal by way of case stated from the Inland Revenue Board of Review (“the Board”) to the Court of First Instance provided in the Inland Revenue Ordinance has infringed BL Article 35.  The taxpayer argued that the lack of a right to appeal against factual findings made by the Board in the case stated procedure infringed the right of access to the courts in BL Article 35.  The Court of Appeal rejected the argument.  The Court of Appeal held, inter alia, that a taxpayer can challenge a Board’s decision by an appeal by way of cases stated or by judicial review, and any difference between these 2 routes was more apparent than real.  Further, in either route, the appellate court was not precluded from detecting and correcting errors of law buried beneath conclusions ostensibly of fact.  If the true and only reasonable conclusion contradicted the determination appealed against, the appellate court would assume that the determination resulted from an error of law and might intervene^[18].

22.  Assessments of stamp duty made by the Collector are subject to judicial review.  If a duty-payer has failed to serve the case stated on SJ and set the case down for hearing within the 7-day period but the delay is excusable and the appeal is meritorious, the duty-payer may still seek reliefs from the Court of First Instance by judicial review.

23.  Since the route of judicial review is available, in my view, the time restriction in SDO s 14(2) does not contravene BL Article 35.

24.  Accordingly, the Appellants’ challenges against the time restriction in SDO s 14(2) fail.  Bangkok Capital Antique remains as a binding authority.  Following that decision, this court does not have jurisdiction to extend the 7-day period in SDO s 14(2).

IF NO, ANY JURISDICTION TO STRIKE OUT THE APPEAL?

25.  Since this court does not have jurisdiction to extend the 7-day period in SDO s 14(2), these 2 appeals cannot be proceeded with.  In these circumstances, I am of the view that the striking-out order sought by the Collector in each of these appeals is the order ought to be given, and this court has jurisdiction to make that order under District Court Ordinance s 48(1).  Further, the 2 appeals ought to be struck out in these circumstances so that no more resources of this court would be consumed by these cases.  This court also has jurisdiction to make the striking-out order in each appeal by exercising the jurisdiction conferred by the Rules of the District Court, Order 1B rule 1(2)(l). 

IF YES, WHETHER DISCRETION SHOULD BE EXERCISED IN THE APPELLANTS’ FAVOUR TO EXTEND TIME?

26.  For the sake of completeness, I would also discuss if this court has jurisdiction to extend the 7-day period in SDO s 14(2), whether the discretion should be exercised in the Appellants’ favour.

27.  In each of these 2 appeals, Mr Young has made an affirmation explaining the delay.  The explanation offered is as follows:-

(a)   The Case Stated delivered to the Appellant was accompanied by a covering letter, in which the Collector said:

“You are reminded that if you wish to set down the case for hearing, you must apply to the Court for the same and serve a copy of the signed case to the Secretary for Justice within 7 days from the date of the case stated is delivered to you.” (Underline in original)

(b)   When the Case Stated and the covering letter were delivered to the Appellant, the Appellant at that time was not represented by any lawyer and was acting in person.  Mr Young said, according to his understanding, the true meaning of the reminder in the covering letter is that (i) the Appellant must apply to the court to set down the case for hearing, but there is no time limit for this; and (ii) the Appellant would need to serve a copy of the Case Stated on SJ within 7 days from the date of the delivery of the Case Stated to the Appellant.

(c)   With this understanding in his mind, Mr Young was very surprised when he received the 2 striking-out summonses.  After obtaining legal advice, he realized that he had misunderstood the reminder, and he came to understand that the Appellant in fact was required to do the 2 matters (ie serving the Case Stated on SJ and setting down the case for hearing) within the 7-day period.

28.  Mr Lee submits that in the light of the explanation offered by Mr Young, and taking into account that there would be no prejudice to the Collector if an extension of time is granted, the discretion to extend time should be exercised in the Appellant’s favour in each appeal. 

29.  Mr Leung draws my attention to the fact that even up to now, the Appellant in each of these 2 appeals have not yet served the Case Stated on SJ.  Mr Leung submits that there is no reason to grant an extension of time to the Appellant in each of these 2 appeals.

30.  Even if this court has the jurisdiction to extend the 7-day period in SDO s 14(2), I would refuse to exercise my discretion to grant any extension of time to the Appellants.

(a)   While the court may give a certain degree of tolerance to a party who is acting in person, that does not mean that a litigant in person can completely ignore the timetable laid down in the relevant law or by the court.  After all, there is one set of rules for all parties, and all parties shall observe the rules, no matter whether they are represented or unrepresented^[19].

(b)   Even if I take the explanation given by Mr Young on its face value, Mr Young has not offered any satisfactory explanation as to why the Appellant in each of these appeals has not served a copy of the Case Stated on SJ within the 7-day period.

(c)   In each of these 2 cases, the Case Stated was delivered to the Appellant on 18 February 2016.  Now is early 2018. The delay is long and substantial.

(d)   In my view, no satisfactory explanation has been offered by the Appellant in each of these appeals in respect of the long and substantial delay.

(e)   I disagree with Mr Lee’s submission that there would be no prejudice to the Collector if an extension of time is granted to the Appellant in each of these appeals.  When a duty-payer does not deliver the Case Stated to SJ and set the case down for hearing within the 7-day period, the Collector is entitled to treat that the duty-payer does not require the case to be heard and the matter is over.  If an extension of time is given to the duty-payer, the Collector would be deprived of the finality provided in the case stated procedure in SDO s 14.  No doubt this would be a prejudice to the Collector. 

(f)   In view of the above, no time extension should be granted to the Appellant in each appeal.

MERITS OF THE APPEALS

31.  To complete the picture, I would also briefly discuss the merits of the 2 appeals.

DCSA 3/2012

32.  In this appeal, Danix argues that the Collector erred in disregarding the Arrangement mentioned in paragraph 14 of the Case Stated.  In my view, there are numerous problems in the Appellant’s case.

33.  Firstly, as required by SDO s 11(1), all the facts and circumstances affecting the liability of any instrument to stamp duty, or the amount of the stamp duty chargeable on an instrument, are to be fully and truly set forth in the instrument.  The instrument in question is the Assignment dated 31 March 2011.  As set out in the Assignment, the Property was sold by Bitaki to Danix at $2,280,000 “subject to and with the benefit of existing tenancy or letting”.  Particulars of such “existing tenancy or letting” have not been set out in the Assignment.  However, on any reasonable understanding, such “existing tenancy or letting” cannot be the 6-year lease (for the term from 31 March 2011 to 30 March 2017) under the Arrangement.  Under the Arrangement, possession of the Property has been given to Suneasy under the 6-year lease.  All the rentals paid by Suneasy had been paid to Bitaki in advance, and not one single dollar of the rentals would be given to Danix.  Obviously, Danix only has burden and no benefit under the Arrangement.  So, the description of “subject to and with the benefit of existing tenancy or letting” in the Assignment would not be referring to the 6-year lease under the Arrangement.  The Collector is entitled to ignore the Arrangement in assessing the stamp duty payable on the Assignment in these circumstances.

34.  Secondly, as summarized in paragraphs 8 and 17 of the Case Stated, there was a tenancy agreement leasing the Property to Capital Fur for two years from 1 April 2011 to 31 March 2013 at the monthly rent of $49,000.  That tenancy agreement was terminated on 30 June 2012.  Obviously, this tenancy agreement does not sit comfortably with the 6-year lease under the Arrangement.  Danix simply cannot explain who was the tenant (Captial Fur or Suneasy) occupying the Property from 1 April 2011 to 30 June 2012.

35.  Thirdly, on or about 23 February 2012, the Collector wrote to Danix and requested for, inter alia, documentary evidence to prove the upfront payment of all the rentals in the 6-year lease in the Arrangement, the total of which is $6,120,000, by Suneasy to Bitaki.  On or about 22 March 2012, Danix wrote back and refused to provide the evidence.  Up to now, this is no evidence showing the payment of the said rentals.  In my view, in the absence of any satisfactory evidence proving the payment of these rentals, and taking into account that Danix, Bitaki and Suneasy are all controlled by Mr Young, the Collector is entitled to take the view that the Arrangement is artificial and has no commercial purpose other than for the avoidance of stamp duty.

36.  In my judgment, there is no merit in this appeal.

DCSA 4/2012

37.  In this appeal Sanforce argues that the Collector erred in the following aspects:-

(a)   failing to take into account of the fact that the Property was sold to the Sanforce subject to the litigation mentioned in paragraph 9 of the Case Stated and also subject to a very short period for completion (less than a week);

(b)   failing to take into account the Arrangement mentioned in paragraph 16(b) of the Case Stated.

38.  I am of the view that there is no merit in the arguments based upon the Arrangement:-

(a)   The instrument in question is the Assignment dated 18 March 2011.  As per the Assignment, the Property was assigned to Sanforce “subject to and with the benefit of existing tenancy or letting”.  On any reasonable understanding, such “existing tenancy or letting” cannot be the 6-year lease (for the term from 18 March 2011 to 17 March 2017) under the Arrangement.  Under the Arrangement, possession of the Property has been given to Suneasy for 6 years, but all the rentals have been paid by Suneasy to Bitaki in advance, and not one single dollar of the rentals would be given to Sanforce.  Plainly, Sanforce only has burden and no benefit under the Arrangement.  The Collector is entitled to ignore the Arrangement in assessing the stamp duty payable on the Assignment in these circumstances.

(b)   The Collector, by his letter dated 23 February 2012, has requested Sanforce to produce, inter alia, documentary evidence to prove the upfront payment of all the rentals in the 6-year lease in the Arrangement, the total of which is $1,980,000.  Sanforce, by their letter dated 22 March 2012, has refused to do so.  Similar to the situation in DCSA 3/2012, in my view, the Collector is entitled to take the view that the Arrangement is artificial and has no commercial purpose other than for the avoidance of stamp duty in these circumstances.

39.  I am also of the view that there is no merit in the arguments based upon “a very short period of completion”.  I understand that the very short period of completion means the period from 10 March 2010 to 18 March 2010, the time from the Second Sub-sale Agreement to the Assignment.  In my view, no evidence has been produced to show that the market value of the Property would be substantially and adversely affected by this very short period of completion.

40.  However, in my judgment, the Collector erred in taking the view that the litigation referred to in paragraph 9 of the Case Stated would not adversely affect the value of the Property, as Ms Wong was only claiming the return of the deposit paid to Ms Kwok and not any interest in the Property.  It is well established that while a sale and purchase agreement is terminated due to a repudiatory breach committed by the vendor, the purchaser is entitled to have a lien on the property to secure the return of the deposits and the payment of damages and costs^[20].  The Collector’s view is incompatible with this well-established principle.

41.  For the reason set out in paragraph 40 above, if this appeal can be proceeded with, I am of the view that Sanforce may succeed to a limited extent.  However, by ignoring the 7-day limit in SDO s 14(2), Sanforce now cannot pursue this appeal.

DISPOSITION

42.  For the reasons above, these 2 appeals have to be struck out.  Having heard submissions on costs, I am of the view that there is no reason to depart from the general rule of costs following the event.  In each of these appeals, as a result of the success of the striking-out application, the Collector should get costs of the entire appeal, with a certificate for counsel.

43.  In each of these appeals, I make an order that:-

(a)   the appeal be struck out;

(b)   costs of the appeal, including costs of this application and all costs reserved (if any), be to the Respondent with a certificate for counsel, to be taxed if not agreed.

44.  I thank Mr Lee and Mr Leung for the assistance provided to the court.