ASIA CREDIT CARD PRODUCTION LTD v. COMMISSIONER OF INLAND REVENUE

HCAL 104/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 104 OF 2013

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DECISION ON COSTS

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1.  The principles for awarding indemnity costs are not in dispute. In Town Planning Board v Society for Protection of the Harbour Ltd (2004) HKCFAR 114, the Court of Final Appeal had set out the relevant principles at paragraph 123-124:

“(i) The court has a broad discretion to determine how costs shall be paid and whether indemnity costs should be ordered under Order 62, rule 28(3) and section 52A of the High Court Ordinance, Cap 4.

(ii) The successful party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature” (Overseas Trust Bank Ltd v. Coopers and Lybrand [1991] 1 HKLR 177 at 182J, per Godfrey J; Sung Foo Kee Ltd v. Pak Lik Co. (A firm) [1996] 3 HKC 570 at 575C-D).

(iii) The courts have rejected the proposition that an award of indemnity costs will only be made where a case has been brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party.

(iv) The courts have emphasized the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made. It has been said that the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.

(v) While the grounds upon which costs are awarded must be connected with the case. This may extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation, but no further.

2.  In summary, the court has a broad discretion and it is not fettered beyond the requirement that taxation on indemnity basis must be appropriate.

3.  In the present case, it is up to the applicant to show to the court that these principles in the CFA case have been met.  The complaint of the applicant is that the tax system is for the taxpayer to pay first and his objection considered later.  This is a fact which taxpayers have to live with.  In substance, the applicant’s grounds for seeking costs on indemnity basis are:

(1) that the CIR has withheld the applicant’s accounting record and refused to return them;

(2) there has been delay in determination of tax liability which has caused financial pressure on the applicant;

(3) the CIR has misled the court in the affirmation filed in the present proceedings.

4.  On ground (1), the complaint was not in Form 86 or the affirmation of the applicant.  The withholding of the accounting record apparently was for consideration of the tax liability and I do not see how the applicant can rely on this ground.

5.  On ground (2), the facts showed that the CIR had asked for documents which they said had not been supplied or wholly supplied by the applicant.  This, of course, had an impact on their coming to a determination.  The applicant’s complaint under this ground and the CIR’s defence requires full examination of the merits of each party’s case.

6.  With respect to Mr Cheung, there was nothing which he can point to show that the CIR’s defence could be dismissed outright without consideration of the merits.  I am not satisfied that CIR’s conduct was such that there had been a totally unjustified delay in determination to warrant indemnity costs against them.

7.  On ground (3), it is a serious allegation to say that the CIR has misled the court.  The allegation is in substance that the CIR stated on affirmation that there had been a substantive change in the mode of operation in the applicant’s business in recent years when it was not the case.

8.  With respect, the CIR was merely quoting what the applicant’s tax representative said in the tax representative’s own letter.  There is no substance in the allegation that the CIR has misled the court.  

9.  Whilst this court has power to take into account conduct before the litigation to determine the proper basis for taxation of costs.  Having considered all the circumstances, I do not see any ground for imposing beyond party and party costs on the respondent.  The fact that there were no substantive merits in the CIR has been fully addressed by the agreement to pay party and party costs.

10.  In the premises, I order that the respondent should bear the costs of the applicant up to and including 13 January 2014 when the respondent offered to pay costs.  This shall be costs on party and party basis, to be taxed if not agreed.