Tang Kam Charn and another v. The Collector of Stamp Revenue

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HEADNOTE

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REVENUE LAW - Stamp Duty - voluntary disposition inter vivos - appeal against assessment by Collector of Stamp Revenue - section 14 and 27 of Stamp Duty Ordinance (Cap.117).

IN THE DISTRICT COURT OF HONG KONG

CIVIL JURISDICTION

STAMP APPEAL NO. 26 OF 1991

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JUDGMENT

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1. By an assignment dated the 14th August 1989, a semi-detached two-storey house ("the property"), located off Peak Road West on Cheung Chau island, was conveyed to Tang Kam Charn and Cheng Sui Kuk ("the appellants") for a stated consideration of $340,000. On the 24th August 1989 the assignment was presented for stamping, and was stamped in the sum of $2,550, being the ad valorem stamp duty payable thereon.

2. On or about the 2nd August 1991, the Collector of Stamp Revenue ("the respondent") gave notice to the appellants to the effect that the assignment was, in his opinion, a voluntary disposition inter vivos, and was chargeable to stamp duty on a valuation of $600,000. On the 20th August 1991 the appellants gave notice of appeal against this assessment and required the respondent to state and sign a case under section 14 of the Stamp Duty Ordinance (Cap.117). The appeal was heard on the 12th March 1993. Pursuant to section 14(5A) of cap.117, I appointed Mr. M.W. Phillips, a member of the Lands Tribunal, to assist me in the appeal. Having heard the parties to the appeal, I indicated that the appeal would be allowed and written reasons would be given at a later stage. The following are the reasons for the court's decision.

3. The Ordinance does not specify the form or content of the case, or when it must be stated and signed by the Collector. Nor does it give any guidance on the procedure to be followed by the court when entertaining appeals. It would seem from section 14(3) of cap.117 that the court's jurisdiction is confined to determining the question submitted by the Collector, and assessing the stamp duty, if any, chargeable on the instrument. But, whether it is to proceed by way of a complete re- hearing or merely by way of a review of the Collector's decision is unclear. If it is the latter, the court's power to intervene must be extremely restricted, because section 27(4) of cap.117, as construed by the Privy Council in Lap Shun Textiles Industrial Co. Ltd. (No.2) v. The Collector of Stamp Revenue [1976] HKLR 288, effectively leaves all matters of fact to the opinion of the Collector. The latter's opinion can presumably be based on any information, whether or not it is legally admissible as evidence in civil proceedings in the court. If the appeal is to take the form of a re-hearing, the court is presumably bound by the usual rules of evidence in civil proceedings. This may result in the rejection of information on which the Collector's opinion was formed; or the rejection of information favourable to the person chargeable with stamp duty. In the present case, the court has adopted something in the nature of a "half- way" course, with the agreement of the parties. It has received evidence from a valuer employed in the department of Rating and Valuation and the first-named appellant. Indeed, without such evidence, it is difficult to see how the court could discharge the functions conferred on it by section 14 of cap.117, because the appeal is not from a person or body which has made findings of fact or law after a judicial enquiry.

4. It appears from the case stated that the respondent sought valuations from the Commissioner of Rating and Valuation ("the Commissioner") on two occasions. On the first occasion, be sought advice on the value of the property as on the 14th August 1989; and was advised on the 28th January 1991 that it was worth $600,000 on that date. The basis of that advice has not been made known to the court. But, it is fairly clear from paragraph 4 of the case stated that the respondent came to the conclusion that this conveyance was deemed to be a voluntary disposition by a purely mathematical process of calculating the difference between the stated consideration and the advice given by the Commissioner. There is no suggestion that the respondent made any other enquiries before issuing his assessment on the 2nd August 1991. For the purposes of the present appeal, the court must proceed on the basis that the respondent no longer relies on that advice from the Commissioner. In its place, he seeks to justify his assessment of the 2nd August 1991 by reliance on a valuation of the property as on the 18th July 1989, being the date of the provisional agreement for the sale and purchase of the property.

5. The revised valuation was apparently given by the Commissioner on the 8th November 1991. It is not identified in the case stated; but is presumably the Valuation Report prepared by Mr. Mak Nin-sang and used by him when giving evidence in this appeal. A copy of that report was sent to the appellants in November 1992 under cover of a hearsay notice; and a Chinese version thereof was supplied to them in January 1993. The case stated was sent to them on the 15th October 1992. Although they have not been legally represented in this appeal, I am satisfied that they have been given adequate notice of the respondent's case. The amount of stamp duty at stake in this appeal is no more than $6,450. It clearly does not justify additional expenditure by the appellants on legal or other professional advice.

6. Having read Mr. Mak's report and considered his oral testimony, I feel obliged to make a number of general observations. In the first place, with the utmost respect to Mr. Mak, his report is not really a valuation. It is largely a mathematical exercise using crude figures obtained from official records. Although he had visited the locality of the property and viewed it from the outside, his report made no allowances for any special features, for which he was later prepared to concede that some discount should be made. For example, he made no allowance for access to a roof, or whether such access existed. He made no allowance for the remoteness of the property or the fact that it fronted upon a large and unsightly rubbish dump at the time the appellants purchased the property. In fairness to him, many of these features, which would or might effect the market value of the property, could not be obtained from the archival information on which his report was largely based.

7. Secondly, although Mr. Mak claimed that his report was based on "the direct comparison method of valuation", the so-called "comparables" on which he relied are not true comparables. The property is a two-storey semi- detached house. The "comparables" are single storey self-contained flats, each smaller in area than the ground or first floors of the property. There has been no attempt to show the relative values of semi-detached houses and single-storey flats in Cheung Chau or other parts of Hong Kong. The only basis on which the suggested "comparables" can be treated as such is the fact that the assignments occurred at or around the same time as the assignment of the property. That was in July/August 1989; and approximately a month or more after the notorious events of the 4th June 1989. In the case stated it is claimed that the Commissioner took into account:

".. the prevailing market conditions, including the effect of the "June 4" event on property values, in arriving at his revised valuation of $570,000 as at 18 July 1989;"

8. But that is not apparent from Mr. Mak's report. Indeed, he made no reference to the effect of that event on property values in Hong Kong. His evidence that property values dropped by no more than 10 per cent after the 4th June 1989 can only be regarded as a guess. More importantly, it is obvious that it was not advanced by the respondent until after this appeal was set down for a hearing.

9. Thirdly, there is, in my view, some reason to suspect that Mr. Mak's report was no the result of a bona fide attempt to revalue the property as at the 18th July 1989; but merely a device to persuade the appellants to withdraw their appeal. Although this supposed revaluation or revised valuation was apparently given to the respondent on the 8th November 1991 (i.e. some 2½ months after the notice of appeal), it was not disclosed to the appellants until the 23rd November 1992; almost a year after the appellants had rejected the respondent's offer to settle the present appeal; and some five weeks after they had set down their appeal for hearing by the court. These facts are apparent from paragraphs 8 and 9 of the case stated and Exhibit C annexed thereto. In my view, paragraph 9 should never have been included in the case stated. Unless a genuine settlement is reached disposing of the issues in the appeal, it is wholly improper to include references to "without prejudice" or similar communications.

10. Having regard to these observations the court is satisfied that the first question stated by the respondent, viz, whether the assignment is chargeable with stamp duty as re-assessed by the Collector, must be answered in the negative. Indeed, it is arguable that there was insufficient material on which the Collector could conclude that the assignment of the property was a voluntary disposition within the meaning of section 27 of the Ordinance. However, I do not think that it is open to the court to allow the appeal on this basis. The point was never argued. It is arguably not within the scope of the questions submitted for the opinion of the court. And, I have grave doubts whether the appeal machinery provided by section 14 of the Ordinance is intended for questioning opinions formed by the Collector under section 27, or can effectively be used for that purpose. It may be that judicial review in the High Court is the more appropriate avenue to relief.

11. In the present appeal, I see the court's function as solely that of deciding the value of the property at the material date. I am clearly of the view that the property was not worth either of the two sums put forward by the Collector. But, at the same time, I am satisfied that it was probably worth more than the consideration stated in the provisional sale and purchase agreement and the assignment. Although I cannot accept the valuations put forward by the respondent, I cannot ignore the factual evidence which has emerged in this appeal, because section 14(3) of the Ordinance obliges the court to assess the duty chargeable on the instrument if it is "chargeable with any stamp duty". I am satisfied that it was so chargeable, and that it was insufficiently stamped in 1989. I conceive that I must now assess the amount of the stamp duty chargeable.

12. The first of the so-called "comparables" consists of a second floor flat with access to an open roof built in 1976 (No.1). It was sold for $240,000 in July 1989 and the saleable area, excluding the roof, is 33.5 sq. metres. Allowing for the roof I consider that the unit price would be about $6,500 per sq. metre. The second is a first floor flat of 34.7 sq. metres, built in 1979, which was sold for $280,000 in June/July 1989. The unit price is approximately $8,000 per sq. metre. In my view, the unit price for the property, which was built in 1976 but in a better state of repair than comparable No.1, should be somewhere between that for these two comparables, say about $7,000 per sq. metre. The third comparable is really of no assistance. It was built in 1979 and in a good state of repair. It sold for a unit price of approximately $9,000 per sq. metre in July/August 1989. By then the market may have been recovering from the "June 4 event". In any case, the price is out of line with the other two properties.

13. Treating the property as two flats, as Mr. Mak has done, at a unit price of $7,000 per sq. metre, the value of the first floor with an area of 43.65 sq. metres would be about $300,000. There is no evidence of any staircase or other access to the roof. The area of the ground floor is the same, but there is an open yard. That would result in a value of about $340,000. Adding the two figures together gives a gross valuation of $640,000. But, Mr. Mak failed to carry out the second step required, namely adjusting for the fact that his "comparables" do not allow for a "like-with-like" comparison. It is generally accepted that the unit price for very large flats and houses is lower. In the present case the property does not have on each floor the same facilities one would find in self-contained single-storey flats. In my view this calls for a substantial discount of about 30 per cent. That brings the gross figure down to about $450,000. In the present case, I consider that this figure must be further discounted by between 5 and 7 per cent to take into account the fact that there was a most unsightly rubbish dump directly opposite the property in July 1989. Mr. Mak suggested 5 per cent for this. That must have deterred potential buyers from even inspecting the property. That would bring the "value" down to about $420,000.

14. The property is located on a higher level or contour than the other "comparables"; and is somewhat more remote from the main means of access. Mr. Mak was prepared to agree that a further discount of 5 per cent should be made for this feature. Making an adjustment of that kind. I arrive at a final figure of $400,000. In the case stated, it is said that the property was originally put on the market before the 4th June 1989 at an asking price of $500,000. That, of course, is not a good guide to its value. But, in any event, there is no admissible evidence to support that figure. It is based solely on hearsay information which the appellants received from a neighbour after they purchased the property. Although the Agreement for Sale and Purchase dated the 18th July 1989, has been produced (Exhibit 2) there has been no evidence from the estate agency handling the property to indicate how long the property was on the market or whether the vendor was particularly anxious to sell the property at the material time. It may be the case that the purchasers would not have purchased the property in July 1989 if the price had not been reduced to $340,000. But, in the absence of evidence from the vendor or its agent, I must express my scepticism regarding Mr. Tang's evidence on this aspect of the case. The information on which the respondent relies in this case is highly suspect, but it does suggest, in my view, that the appellants acquired the property at a price which was substantially below its true value at the material time. Valuation of immovable property is not an exact science or an exercise which can properly be carried out on the basis of crude statistics relating to superficially similar but different properties or transactions. But doing the best with the material before the court in this appeal I find that the value of the property at the material date was $400,000.

15. Accordingly, this appeal must be allowed. The answer to the first question in the case stated is: "No." The answer to the second question, namely the amount of stamp duty is: $3,000. The difference of $6,000 must be repaid to the Appellants within 28 days.

(B.W.M. Downey)
District Judge