LEE MA LOI v. COMMISSIONER OF INLAND REVENUE AND ANOTHER

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J U D G M E N T

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Sir Derek Cons, V.P.:

1. This appeal is brought by the Commissioner of Inland Revenue to set aside the decision of Godfrey, J., given on 12th December last year whereby the judge, in effect, quashed three notices of assessment and demand for profits tax, together with a notice by the Commissioner under s. 76(1) of the Inland Revenue Ordinance, Cap. 112, which is a notice requiring a third party to pay to the Commissioner monies which the third party holds an account of a person charged by the Commissioner with tax. It will be convenient to set out the facts briefly.

2. Mr. Lee Ma Loi, aged 21, comes from a Hoklo fishing family. He works for his father with whom he lives together with his mother, two brothers and a younger sister aged 13 on the father's fishing boat, which usually moors in Sai Kung when it is not taken out for fishing. On the evening of 19th September last year Marine Police, in the course of a routine search, found on board a plastic bag containing HK$1.2 million in large denomination notes and slipped beneath a pillow on Mr. Lee's mother's bunk. Mr. Lee claimed that the money belonged to him. In the course of two formal statements which he made to the police he declined to answer questions as to how he had come by the money, but said that it wall intended for the purpose of purchasing fish fry. His family is also involved in fish farming. Mr. Lee was arrested and the money taken by the police. Mr. Lee was released, although not until 2:30 the following afternoon. The money however was retained.

3. Meanwhile the police had informed the Inland Revenue Department of what they had found and had faxed over the two formal statements made by Mr. Lee. On reading them a Senior Assessor of the Department formed the view "that the $1.2m was profit that the Applicant had derived from fishing and selling fish or other activities assessable to tax, such as smuggling."

4. The use of the ward "profit" in that passage, taken from an affidavit filed by a Senior Assessor in the proceedings below, is difficult to reconcile with his subsequent conduct which was immediately to estimate the sums in respect of which Mr. Lee was chargeable to profits tax for the three preceding financial years. The Assessor was entitled to do that under s. 59(3) of the Ordinance, Mr. Lee never having furnished any return. We are not told how the estimates were arrived at, other than that they were made "on the basis of the information available", which would have been the two statements of Mr. Lee and the information from the police as to the amount of the money. It would seem likely that some sort of arithmetical approach was adopted, for the sums so estimated gave a tax liability of just $1,205,250.

5. Notices of assessment were duly prepared, containing a demand for immediate payment. The authority for fixing a due date for payment is contained in s. 62(1) of the Ordinance. At the same time another Senior Assessor, being authorised by the Commissioner to issue recovery notices under s. 76(1), and being satisfied that Mr. Lee "being a fisherman in access to a fishing vessel was likely to quit Hong Kong without paying any of the tax charged" caused such a notice to be issued to the Commissioner of Police requiring him to pay to the Commissioner of Inland Revenue whatever monies he held of Mr. Lee, not exceeding $1,205,250. The Commissioner of Police through his officers, complied to the extent of the $1.2 million.

6. The notices of assessment were not served on Mr. Lee, as required by the proviso to s. 58(2) either personally or by registered post. Instead they were, as the Assessor's affidavit puts it, "accepted on his behalf" by his little sister whom the Assessor, with the help of the Marine Police, found on the father's fish farm at about 6:45 that evening. The copy of the s. 76 notice, which is required by that section to be given to the taxpayer, was dealt with in the same way. An attempt a few days later to lodge an objection to the assessments under s. 64 failed as the objection was not accompanied by tax returns. This omission was remedied in October. In the meantime, on 24th September, the Commissioner released $200,000 to enable Mr. Lee and his family "to continue with their livelihood and maintain their economic security". Leave to apply for judicial review was sought from and granted by Ryan, J., on 26th September.

7. I should mention here that the application contained as well many allegations against the Commissioner of Police. The judge below found that there was nothing in any of them that would warrant the grant of relief against him and there those matters rest. We are concerned in these proceedings only with the Commissioner of Inland Revenue.

Ultra Vires

8. It has been long established that where a person or authority is entrusted with statutory powers those powers are to be used "bona fide for the statutory purposes, and for none other": per Buckley, J. in Denman v. The Westminster Corporation [1906] 1 Ch 464 at 476. Sometimes it is said that the powers must not be used for an "ulterior purpose". The judge below used the term "collateral purpose". But the wording is not of any great importance. Both phrases are, as Phillips, J., observed in Congreve v. Home Office [1976] 1 QB 629 at 637, "merely ways of saying that the court is satisfied that there has been an abuse of power", which is after all the ultimate criterion for judicial review in this kind of case. In this context abuse does not connote behaviour to which opprobrium should necessarily attach. Indeed most of the cases are probably, as I think was the present, instances of an honest misunderstanding of the extent of the powers conferred. Thus the concession below that the officers of the Inland

9. Revenue Department "acted honestly and without malice" takes the matter no further.

10. The judge below had not the least doubt that the actions of the revenue officers:

"had really no connection with the assessment and collection of tax. It is quite plain that the exercise, although dressed up in that way, was a colourable device, employed in order to get round the difficulty the police are in when they would wish to charge a suspect with unlawful possession of money but have not enough evidence on which to do so."

11. Other observations of the judge tend to indicate that he felt the Revenue were assisting the police "to confiscate" the monies that had been found. With great respect to the learned judge I think that is an unfair criticism of the officers. As I read the papers the officers were doing no more, as Mr. Wingfield who now appears for the Commissioner suggests, than to ensure that the monies would not be spirited away, but would instead remain available to meet the tax when in due course the correct amounts had been found, either upon appeal to the Commissioner himself or the Board of Review, or perhaps by agreement. In other words the Revenue were acting to obtain, security. However in my view this does not assist the Commissioner, for although the Ordinance gives wide powers of recovery to him or his officers, I am unable to find anything therein which gives him power to require security of that kind. Mr. Wingfield suggests that the officers' actions were unobjectionable in that the ultimate purpose was recovery of tax. I find that a suggestion which comes dangerously close to endorsing the principle that the end justifies the means. He was perhaps influenced to that submission by an assumption which he emphasised more than once in the course of this and other aspects of the appeal, namely that the sole substantive issue to be determined was the quantum of Mr. Lee's assessable profits. With that I cannot agree. The substantive issue in these proceedings is whether the Assessors acted in abuse of their powers. The judge below found that they did. I would agree with him.

Alternative remedies

12. In R. v. I.R.C. ex parte Preston [1985] AC 835 at 852 Lord Scarman said:

" My fourth proposition is that a remedy by way of judicial review is not to be made available where an alternative remedy exists. This is a proposition of great importance. Judicial review is a collateral challenge: it is not an appeal. Where Parliament has provided by statute appeal procedures, as in the taxing statutes, it will only be very rarely that the courts will allow the collateral process of judicial review to be used to. attack an appealable decision."

13. Mr. Wingfield relies heavily on that observation and points to the provisions in the Ordinance. By means of these Mr. Lee could first object to the Commissioner himself (s. 64). He could then appeal to the Board of Review (s. 66) with a right of appeal on law to the High Court (s. 69), or go direct to the High Court (s. 67), in either case with further appeal to this Court and to Her Majesty in Council.

14. Mr. Darwyne, for Mr. Lee, has carefully analysed the disadvantages of these procedures by reference to the particular criteria suggested by Glidewell, L.J., in Ex parte Waldron [1985] 3 WLR 1090 at 1108. For my part I do not think it is necessary to go that far. Lord Scarman, shortly following the passage I have just quoted, said:

" But cases for judicial review can arise even where appeal procedures are provided by Parliament."

15. In my view this is clearly one of those cases. Whether a statutory power has been abused, particularly one that has been given to himself, is not an apt question for decision by the Commissioner of Inland Revenue or by the Board of Review. Abuse of power is a matter of public importance. It can only be properly investigated in a court of law. In my view it should go there directly, not as a possible last resort from a tribunal that is concerned primarily with technical and financial questions.

Discretion

16. Orders of certiorari, and the declaration which was actually made in this instance, are discretionary in their nature. The court, even though satisfied that there has been an abuse of power, may nevertheless withhold the remedy if it thinks it appropriate in the circumstances. Although it was suggested to him, the judge below declined to take that course. It has nevertheless been strongly urged upon us, for the following reasons:

1. Mr. Lee makes, or at least for the time being augments his living, by smuggling;

2. he attempted, by untruthful statements, to mislead the court. This point arises from para. 13 of his affidavit in which he affirmed "We are old-fashioned. We do not trust banks. Hoklo people literally keep their money under their bed." Subsequent enquiries revealed that in fact he and other members of his family maintained active bank accounts through which substantial sums of money had recently passed. In an affirmation replying to that revelation Mr. Lee observed "I have never denied that I hold a bank account"; a fine, but unconvincing, distinction;

3. if the balance of the money is returned to Mr. Lee it is unlikely that the appropriate tax will ever be recovered; this is said to assume more importance now that the bank accounts have revealed that the estimated assessments were reasonable.

17. Whether Mr. Lee's bank account shows that the estimates were after all reasonable is a matter for accountants rather than this Court. I accept that if the balance of the monies is returned the Commissioner may experience difficulties in recovery. But I doubt whether in this respect Mr. Lee's position would be unique, or even rare.

18. Certainly Mr. Lee attempted to mislead the Court and it might well be thought in the circumstances, and in the light of common knowledge as to what is happening at the present, that to some extent he has been engaged in smuggling. The assumption, however, may not be as concrete as the judge below took it to be, for two other fishermen and one fish farmer have gone on solemn affirmation to account for $780,000 of the money in question.

19. When dealing in his judgment with the submission made below on behalf of the Commissioner the learned judge observed:

"This is a public law case. Whatever may be the position of a sinner in ordinary litigation, he is entitled in this area to the same consideration as a saint."

20. In my view that is too sweeping a statement, but the succeeding words of the judge make it clear that he founded his decision on a wider approach:

"I have considered whether, having regard to the very unfavourable view which I have formed of the applicant, it would be legitimate to find him in the right but to refuse him any relief. But it seems to me that, although I do have a discretion whether or not to grant the applicant relief, I ought not to exercise it in that way. If the applicant has succeeded (and he has succeeded) in exposing the acts of the executive in his case as an abuse of power, he ought not, in my judgment, to be denied relief on the grounds of the egregious lack of frankness (and indeed mendacity) he has displayed in the prosecution of his application."

21. The question was essentially one for his own discretion. He was well aware of the three considerations I have just dealt with above. I can see no justification for interference from this Court.

22. I would therefore, dismiss the appeal.

Mayo, J.:

23. I agree with my Lord and have nothing to add.

Bokhary, J.:

24. I agree that this appeal must be dismissed.

25. Godfrey, J., concluded that these assessments had been reached by starting off with the aim of arriving at a total which would enable the revenue to get their hands on the cash found on the taxpayer. On the material before the learned judge, that conclusion is more than sustainable. It is inescapable. And I have no doubt that the revenue's power to make estimated assessments was not conferred on them for the purpose of working backwards in that way. Nor was it conferred on them to enable them to confiscate property or to take it as security for the payment of tax. Nobody has tried to confiscate anything. But security is what the revenue is after. And that will not do either. So it is clear that these assessments were liable to be quashed by way of certiorari. And the fate of the s. 76 notice is of course inextricably bound up with that of the assessments.

26. What now remains of this appeal is the question of discretion.

27. As no attempt has ever been made to set aside the leave to apply for judicial review, I say nothing on what might have happened if such an attempt had been made.

28. The question to which I have given anxious consideration is this. As the taxpayer has lied to the court and has not ever apologised for doing so, should the discretionary remedy of certiorari have been withheld from him, so as to leave him to his alternative remedy of seeking the Commissioner's determination and, if dissatisfied therewith, of appealing toll the Board of Review and possibly the courts? The learned judge's apparent refusal to distinguish between, in his own terminology, saints and sinners in the context of discretionary relief has caused me to wonder if Homer might not have nodded on this occasion. And, to be perfectly frank, I cannot quite free my mind of the anxiety that such a thing has indeed happened here. Nevertheless, it certainly cannot be said that the learned judge wholly forgot that 'he had a discretion to exercise. For he referred in terms to his discretion.

29. At the end of the day, I think that letting certiorari go was legitimate despite the lie and the absence of even an apology for it.

30. One thing which I should mention is this. In exercising his discretion in the taxpayer's favour, the learned judge spoke of him as someone who had succeeded in exposing an abuse of power. That must not be misunderstood. I would not demean our constitution by ascribing to this taxpayer or his sort any role to play as constitutional guardians. Nor do I think for one moment that it can be said that the learned judge did so. But our constitution is rightly a benevolent one. It protects even those whose entitlement to such protection rests on shaky moral foundations.

31. These assessments are bad. It is right that they should go, leaving the way free for good assessments to be made. And I do not see why it should take long to make them.

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