INTERASIA BAG MANUFACTURERS LTD v. THE COMMISSIONER OF INLAND REVENUE

CACV 400/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 400 OF 2004

(ON APPEAL FROM HCAL 98 OF 2003)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Stone J (giving the reasons for judgment of the court):

This application

1.  This was an application by the respondent, the Commissioner of Inland Revenue (‘CIR), pursuant to a summons dated 30 September 2009, to strike out the Notice of Appeal dated 30 December 2004 and filed by the appellant, Interasia Bag Manufacturers Ltd (‘Interasia’) on the same day.

2.  The application, which is mounted on the basis that this appeal should be struck out for want of prosecution and/or is an abuse of process, is backed by an affirmation, also dated 30 September 2009, of Mr Lai Wing-man, a Senior Assistant Assessor with the Inland Revenue Department.

3.  At the hearing of this application Interasia, the respondent to this application, was unrepresented, and at the conclusion of the hearing this Court acceded to the application of the CIR, and struck out the Notice of Appeal, with costs to the applicant assessed on a gross sum basis on the basis of a summary of costs helpfully prepared by counsel for the CIR, Ms Winnie Ho.

4.  We now give our reasons for so doing.

The factual background

(i)  The nature of the case

5.  These proceedings began life as a tax case.

6.  The appellant, Interasia, was a company carrying on business trading in leisure bags and accessories.

7.  According to a Directors’ Report dated 11 June 2003, Interasia became dormant in February 2002; its last full annual return was filed on 6 June 2002, and such dormant status was formalized by Special Resolutions filed with the Companies’ Registry on 5 February 2007.

8.  In April 2003 the appellant company’s assessable profits for the year 2001/2002 were assessed at $42 million, with tax payable thereon in the amount of $6.72 million.

9.  The appellant objected to this assessment under Part XI of the Inland Revenue Ordinance, Cap 112 (‘IRO’), and pursuant to section 71(2) of the IRO applied for a complete unconditional holdover of the tax pending the result of its objection to the assessment.

10.  By letter dated 23 June 2003 the CIR declined to grant a complete holdover of the sum assessed, and on 25 June 2003 issued a notice imposing a 5% surcharge on the tax demanded; this was not paid, nor was any holdover granted pursuant to section 71(5) of the IRO.

(ii)  Judicial review proceedings

11.  The next step was that in HCAL 98 of 2003 the taxpayer instituted proceedings for judicial review against the CIR’s decisions of 23 June and 25 June 2003.

12.  Hartmann J (as he then was) granted leave to apply for judicial review, and on 18 October 2004 the application for judicial review was dismissed by the learned judge.

13.  Accordingly, on 30 December 2004 the taxpayer filed a Notice of Appeal against the decision of Hartmann J, which proceeding became CACV 400 of 2004, and on 5 January 2005 the appeal was set down in the list of appeals.

14.  By consent, on 16 December 2005 Rogers VP made an order for security for costs in the amount of $176,000, which sum was paid into court by Interasia on 19 December 2005.

15.  On 29 March 2007, by order of that date the Court permitted the solicitors for the appellant, M/s C P Cheung & Co, to cease to act and to come off the record.

(iii)  Appellant’s objection to the tax as re-assessed

16.  During the currency of the judicial review proceedings, the appellant’s objection to the tax assessment was considered by the Revenue. As a consequence, the Deputy Commissioner made a Determination dated 16 April 2004, whereby the assessable profits of Interasia were reduced to the sum of $41,159,281, and the tax payable thereon to the amount of $6,585,484.

17.  This Determination failed to satisfy the taxpayer, and thus Interasia filed a notice of appeal to the Inland Revenue Board of Review on 14 May 2004; this appeal was dismissed by the Board of Review on 20 April 2006 under Decision D10/06.

18.  In its Decision the Board of Review (chaired by Mr Kenneth Kwok SC) went so far as to observe (at paragraph 156):

“The Board is of the opinion that this appeal is frivolous and vexatious and a complete waste of the Board’s time…”

19.  No further appeal was launched by the taxpayer from the dismissal of its appeal by the Board of Review, thus leaving extant the re‑assessed amount of tax payable in the sum of $6,585,484.

20.  On 21 September 2006 the CIR issued a revised assessment for 2001/02 pursuant to section 71(4) of the IRO, which assessment became final and conclusive in light of the failure of the taxpayer to appeal from the decision of the Board of Review.

(iv)  Efforts to enforce by the CIR

21.  In an effort to collect outstanding revenue, on 21 August 2003 the CIR issued a writ to recover the tax owing from Interasia in DCTC 7688 of 2003.

22.  Judgment in default was entered against the taxpayer on 25 September 2003, and Interasia then took out a summons to set aside the default judgment and to stay the proceedings and execution of the judgment pending the result of its judicial review proceedings in HCAL 98 of 2003.

23.  This application to set aside the default judgment further was adjourned pending the appeal of Interasia against the judgment of Hartmann J – which, of course, is the appeal now before the court which the CIR seeks to have struck out – but ultimately the application to set aside the default judgment was dismissed by the District Court on 19 April 2007, that court having been persuaded that Interasia had no intention to prosecute the present appeal.

24.  Notwithstanding the existence of the default judgment, the CIR was unable to effect a recovery of the sum due because, we are told, the appellant had transferred its business and in 2002 had become dormant; accordingly, we are further informed, the position remained that as of 24 September 2009 the outstanding tax liability of Interasia in respect of its 2001/02 profits stood at $8,997,436, having taken surcharges and judgment interest into account.

(v)  Procedural steps in this appeal

25.  As earlier noted, this appeal was set down in the Appeals List on 5 January 2005.

26.  In fact, the appellant, Interasia, made no application to fix a hearing date, and, we are told, nor did the CIR; instead an application was brought on for security for costs, granted by Rogers VP in December 2005.

27.  Ms Winnie Ho, appearing on this application on behalf of the CIR, has told the court that the CIR did not apply to fix a date for several reasons: the decision of the Board of Review at that time was pending, and if the decision were to be in favour of the taxpayer, it appeared logical that the appeal might be withdrawn, and in any event consequent upon the appellant’s subsequent failure to appeal the Board’s decision, it was considered that the relief available to the appellant, even on allowance of the appeal, had become academic, and thus it was thought that the appeal would be withdrawn by consent, thereby avoiding incurring further costs. Plus, of course, was the thought that the chances of having the appeal struck out would be enhanced with the passage of time, so that there were the usual ‘sleeping dogs’ considerations.

28.  As matters have transpired, it has become clear that in the situation as it currently prevails the chance of recovering the tax owed is remote, and thus, subsequent to the coming into effect of the Civil Justice Reform, consideration actively was given to apply to dispose of this outstanding matter.

29.  Accordingly, letters were sent to the last registered address of the appellant, but such letters were returned undelivered, so that there is now no possibility of a dismissal by consent, which clearly would have been the most sensible and cost-effective course.

30.  It followed, therefore, that the present strike out application represented the only option available to the CIR.

Grounds of the strike out application

31.  Against this background, the court was invited by counsel for the CIR to exercise its discretion to strike out this Notice of Appeal with costs in favour of the respondent: see Hong Kong Civil Procedure 2010, paragraph 59/3/6.

32.  We touch but briefly upon each ground invoked.

(a)  Want of Prosecution

33.  Ms Ho has emphasized that it has been nearly 5 years since this appeal was set down, and that by choosing to lodge such appeal, the appellant has enjoyed a tactical advantage in terms of effectively “stalling” the CIR’s enforcement action in DCTC 7688 of 2003.

34.  She submitted that applications for judicial review represent an area wherein speedy resolution is contemplated, both in the court hearing the initial review application and in terms of any possible appeal therefrom, and in this context counsel drew the attention of the court to the observations of Steyn LJ (as he then was) in Secretary of State for the Environment v Euston Centre Investments Ltd [1995] Ch 201, wherein his lordship noted that judicial review applications ought to represent a field of the law wherein it was acceptable to strike out on the grounds of delay absent the necessity to demonstrate serious prejudice or a risk of being unable to have a fair trial.

35.  Ms Ho made two further points in this connection: first, that the appellant had had its day in court, namely, at first instance before Hartmann J, and that, as Steyn LJ had observed in Euston Centre, op cit., at 207, “the reality of the applicant already ‘having had his day in court’ cannot be ignored”; and second, that under the new CJR regime, with its Order 1A, rule 1(b) objective of ensuring that a case is dealt with as “expeditiously as is reasonably practicable”, the delay that had occurred in the hearing of this appeal was the more relevant and unmeritorious. Nor can there be any question of not viewing this application through the prism of the new rules: as Reyes J observed in Nanjing Iron & Steel Group International Trade Co Ltd & ors v STX Pan Ocean & anr, HCAJ 177 of 2006, unrep., judgment dated 7 September 2009, there is no transitional provision within the rules mandating the Court to ignore the rules (including the underlying objectives) as they now are, and that parties have only themselves to blame “if they have delayed progressing their case to an extent that the applicable procedural rules have changed in the interval”.

36.  We are satisfied on the evidence before us that not only had the appellant failed to fix a hearing date since setting down in January 2005, but that letters sent to its registered address were returned undelivered; nor, of course, do any lawyers for the appellant remain on the record, and it is tolerably clear that as far as Interasia is concerned this appeal is not going to be pursued.

37.  Accordingly, we are satisfied that the ‘want of prosecution’ head has been established sufficient for this court to exercise its discretion thereunder.

(b)  Abuse of process

38.  In her written argument Miss Ho takes the additional point that, in the circumstances as now prevailing, this appeal has become academic, and thus, she submitted, the continued prosecution thereof would constitute an abuse of process.

39.  She argued that the 2 decisions challenged in the underlying judicial review proceedings before Hartmann J were first, the refusal of the CIR to grant a complete holdover of tax pending the result of the appellant’s objection under Part XI of the IRO to the assessment; and second, the decision of the CIR to impose a 5% surcharge on outstanding tax.

40.  Ms Ho says that by virtue of the operation of Part XI of the IRO, and in particular section 70 thereof, upon the appeal mechanisms thereunder becoming exhausted (as is the situation in this case), the tax assessment in question became final and conclusive, and thus the issue of the holding over of tax does not arise, whilst the imposition of the surcharge is in accordance with the law.

41.  Thus, the relief sought in the Notice of Appeal had been overtaken by events, and it followed that in any event the appeal “had become purely academic” and should not be heard: see, for example, Gay v Yip Shut Yuen [2004] 1 HKC 615, and Kuok Hong Neng v Yuen Sik Wah & anr [2004] 1 HJC 618.

42.  Whilst Ms Ho accepted that it was not an absolute bar to hear an appeal which has become academic where a point of law of public importance was involved, and where all parties were represented in order that all sides of an argument could be fully put, she submitted that this type of situation was very far from the instant case: not only was no-one acting for the appellant and there were no interveners, but in terms of the objections as originally raised the appeal was entirely fact-specific, and in any event the merits thereof had been ruled by Hartmann J at first instance to have been of no substance: “there is no merit in this challenge” was the view of the judge, which we note is an opinion echoing that of the Chairman of the Board of Review in D10/06.

43.  We agree with this submission, and although it is not strictly necessary to do so, given that this application effectively has been concluded by our view on the ‘want of prosecution’ issue, we should have been minded to exercise our discretion to strike out under this head also.

Order

44.  For the foregoing reasons, therefore, at the conclusion of this hearing this court made the following Order:

(i)  The appellant’s Notice of Appeal dated 30 December 2004 against the decision of Hartmann J in HCAL No 98 of 2003 be struck out, and the appeal dismissed;

(ii)  The costs of this application be to the CIR, the applicant herein, and that such costs are assessed on a gross sum basis at $115,125.00;

(iii)  Such costs as thus assessed are to be paid out from the monies paid into court by the appellant as security for costs in compliance with the Order of Mr Justice Rogers VP dated 16 December 2005.