WESON INVESTMENT LTD v. THE COMMISSIONER OF INLAND REVENUE

cacv 261/2005

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 261 of 2005

(on appeal from HCA NO. 272 of 2004)

______________________

J U D G M E N T

______________________

Hon Rogers VP:

1.  This was an appeal from a judgment of Deputy High Court Judge Gill given on 1 August 2005.  The matter before the judge was a claim for interest amounting to some HK$2,426,234.10.  The judge dismissed the plaintiff’s claim and, at the conclusion of the hearing of this appeal, judgment was reserved.

Background

2.  In November 1992 the plaintiff purchased land in the New Territories.  After redevelopment part of that land was sold in June 1996 as a result of which the plaintiff made a substantial profit.  The plaintiff submitted a profits tax return and audited financial statements on 31 July 1997.  There was some correspondence regarding the nature of the profit and the Revenue considered that the profit was taxable.  A notice was issued on 10 December 1999 assessing and demanding tax of $7,620,671.  That was followed on 7 January 2000 when the plaintiff’s tax advisers, Ting Ho Kwan & Chau, objected to the notice of assessment and requested the Revenue to hold over the amount of tax payable pending the result of the objection.  A holding over is governed under section 71(2) of the Inland Revenue Ordinance, Cap. 112 (“the Ordinance”).  That section reads:

“(2)      Tax shall be paid notwithstanding any notice of objection or appeal, unless the Commissioner orders that payment of tax or any part thereof be held over pending the result of such objection or appeal: (Amended 7 of 1985 s. 2)

Provided that where the Commissioner so orders he may do so conditionally upon the person who or on whose behalf the objection or appeal is made providing security for the payment of the amount of tax or any part thereof the payment of which is held over either-

(a)   by purchasing a certificate issued under the Tax Reserve Certificates Ordinance (Cap 289); or

(b)   by furnishing a banker’s undertaking,

as the Commissioner may require. (Added 7 of 1985 s. 2)”

3.  On 14 January 2000 the Revenue ordered that the payment of tax of $7,620,671 be held over pending the result of the objection on condition that an equal amount of Tax Reserved Certificates (“TRC”) be purchased by the plaintiff no later than 28 January 2000.  That was in conformity with section 71(7) of the Ordinance.  That reads:

“(7) Where the Commissioner exercises his powers under the proviso to subsection (2) and a person is required to purchase a certificate under paragraph (a) of that proviso-

(a)  a certificate in an amount equal to the tax or any part thereof the payment of which is held over shall be purchased within a period of 14 days from the date of the order of the Commissioner, or on or before the date for the payment of tax specified in the notice of the assessment, whichever is the later, failing which the provisions of subsection (2) shall apply as they would if there had been no order;

(b)  the Commissioner shall, when he issues a certificate so purchased, note on it particulars sufficient to identify the objection or appeal to which it relates;

(c)  upon the withdrawal or final determination of the objection or appeal a certificate or part of a certificate so purchased shall be accepted by the Commissioner in payment of so much of the tax held over as becomes or is found to become payable, and no interest shall be payable upon any certificate or part of a certificate so accepted;

(d)  where, upon the final determination of the objection or appeal, and after all tax held over which becomes, or is found to be, payable has been paid in the manner specified in paragraph (c), any certificate or part of a certificate so purchased has not been accepted as payment by the Commissioner under paragraph (c), the holder thereof may surrender that certificate or part to the Commissioner and-

(i)    if 36 months or less since the date of purchase of the certificate has elapsed, at his option require the Commissioner to-

(A)  make an entry in an account in the name of the holder maintained under the Tax Reserve Certificates Ordinance (Cap 289) for the principal value represented by the certificate or part together with the interest thereon calculated in accordance with the rules from the date of issue of the certificate to the date of the final determination of the objection or appeal; or (Replaced 24 of 1999 s. 10)

(B)  repay the principal value represented by the certificate or part together with the interest thereon calculated in accordance with the rules from the date of issue of the certificate to the date of the final determination of the objection or appeal; or (Amended 24 of 1999 s. 10)

(ii)    if more than 36 months since the date of purchase of the certificate has elapsed, the Commissioner shall repay to the holder the principal value represented by the certificate or part together with interest thereon, calculated in accordance with the rules, from the date of issue of the certificate to the date of the final determination of the objection or appeal; and (Amended 24 of 1999 s. 10)

(e)  no certificate so purchased shall be valid for any purpose except as specified in the preceding paragraphs. (Added 7 of 1985 s. 2)”

4.  With that notification there was included a blank TRC which stated that the plaintiff would be entitled to repayment of the sum with any interest which might accrue in accordance with the conditions set out in the Tax Reserve Certificates (Fourth Series) Rules.

5.  The judge summarised the events which followed in paragraphs 7 to 11 of the judgment,:

“7. The plaintiff did not purchase a TRC for this or any value by the due date nor did it pay the tax and was thereafter in default.  How and why there was no TRC purchase was the subject of correspondence a few years later; I shall return to this topic.  Because of the default, the Commissioner in exercise of his powers under section 71(5) IRO added 5% surcharge to the debt and by writ of 22 May 2000 sued to recover the enhanced amount of $8,001,704.

8. The plaintiff took no steps and on 22 June 2000 a District Court Registrar entered judgment by default for such amount together with interest to judgment and beyond and costs.  The interest asked for and ordered was, as authorized by section 71(9)(e)(ii) and (11) IRO, the Judgment Rate as determined by the Chief Justice.

9. On 9 August 2000 the Commissioner issued a final notice (the Final Notice) for $8,001,704 demanding payment on or by 21 August 2000, failing which a further surcharge of 10% would be added.  On the next day the Commissioner exercised his powers under section 76 IRO to recover, on account of the debt, the sum of $15,290 from the plaintiff’s account with the National Commercial Bank.

10. By letter of 19 August 2000 THKC wrote seeking an indulgence of a few days, stating that its client was negotiating a loan to meet the outstanding tax.  Then, on 30 August 2000, the tax was paid by cheque from Petersen Holdings Company Limited, a company also wholly owned and controlled by Yeung Sai Hong.

11. By letter of 23 December 2000, THKC gave detailed reasons for the plaintiff’s objection to paying the tax.  There followed correspondence between the parties, but the upshot was a determination from the Commissioner of 12 March 2002 (the March Determination) which gave notice that the plaintiff’s objection had failed.”

6.  The matter was then taken to the Board of Review.  The Board came to the view that the gain which had arisen on the disposal of the land was capital in nature.  It might be observed that it was not without some hesitation that the Board reached that conclusion.  Nevertheless, it allowed the appeal and set aside the additional assessment of profits tax that had been made by the Revenue.  On 5 September 2003, the Revenue issued a revised additional assessment and refund of tax and enclosed a cheque in favour of the plaintiff for the sum of $7,372,612.68.

7.  The immediate response of the plaintiff was that, in the light of events which were alleged to have taken place when the tax had been paid, it should be taken as having purchased a TRC for the amount of the tax.  On that basis a claim was made for interest of $1,201,998.43.  The Revenue’s position in reply was that a TRC had not been purchased and that there was therefore no interest to be paid.  The Revenue made further refunds of the amounts of the tax surcharge and of the legal costs and judgment interest that had been paid.  That, however, did not satisfy the plaintiff.

8.  In February 2004 this action was commenced claiming interest.  That claim was not put on the basis, suggested in the letters sent in September 2003, that the plaintiff should be taken to have purchased a TRC, but it was put on the basis that the demand for the tax had been unlawful and outside the powers of the Revenue and, in those circumstances, the Revenue had been unjustly enriched to the extent of the amounts paid at the expense of the plaintiff, who was thus entitled to restitution and interest.  The amount of interest calculated was, as already noted, $2,406,234.

9.  Although the Revenue pleaded a number of sections of the Ordinance, it appeared that the primary defence was that repayment was governed by section 79 of the Ordinance which provided for repayment of the tax but not for payment of interest on the tax that had been paid.  Hence, interest was not payable when there was a refund of tax which had been paid in excess of the amount which was properly chargeable.

10.  In a reply, which was, apparently, permitted to be filed shortly before the trial, the plaintiff relied upon Articles 6 and 105 of the Basic Law.

The judgment below

11.  The judge held that the original demand for tax had been lawful and that the Revenue had not taken a mistaken view of the law nor had it taken a mistaken view of the facts.  The Board of Review had conducted a hearing which was, in effect, a first time hearing.  The refund was governed by sections 79 of the Ordinance and there was no gap in the Ordinance in relation to interest.  There was adequate provision for holding over the payment of tax either by the purchase of TRCs or the provision of a bank guarantee.  He went on to say that the Revenue could not act arbitrarily but in any event the plaintiff had been given an opportunity to purchase a TRC.

12.  The judge held that Article 105 of the Basic Law had no application because the amount required to be paid had been tax in terms of section 75 of the Ordinance which made tax recoverable as a civil debt.  In those circumstances, the judge dismissed the plaintiff’s action.

This appeal

13.  On this appeal, Mr Mok SC, who appeared on behalf of the plaintiff, sought to argue first of all that section 79 had no application in this case because the time limit of six years provided in section 79(1) had expired.  That section reads as follows:

“(1)      If it is proved to the satisfaction of the Commissioner by claim duly made in writing within 6 years of the end of a year of assessment or within 6 months after the date on which the relevant notice of assessment was served, whichever is the later, that any person has paid tax in excess of the amount with which he was properly chargeable for the year, such person shall be entitled to have refunded the amount so paid in excess: Provided that nothing in this section shall operate to extend or reduce any time limit for objection, appeal or repayment specified in any other section or to validate any objection or appeal which is otherwise invalid, or to authorize the revision of any assessment or other matter which has become final and conclusive.”

14.  That argument was doomed to failure from the start.  Even if the appeal to the Board of Review were not considered to be a claim in writing, it is quite clear that the correspondence from the plaintiff’s tax advisers, and later their solicitors, constituted such a claim.

15.  It was then argued that section 79(1) should be read as including a power to the Commissioner to pay interest as well as to refund the amount of excess tax that was paid.  In my view it is simply untenable to suggest that the section should be read as including a power to make further payments which are not specifically provided for in the section itself.  It would be absurd to suggest that the Commissioner could pay money out of public funds unless specific power were given to do so.

16.  The plaintiff’s primary submission was that Article 105 of the Basic Law applied and that the plaintiff had been deprived of the capital used to pay the tax without compensation for loss of use.  It was said that, on the basis that the demand for payment of tax despite an unresolved objection was lawful and the individual had been required to pay tax and no interest was paid on the return of that money, there had been a lawful deprivation of the property of the individual.  It was then said that there was no equality between the Government and the individual because if there were no hold over and no tax were paid until it were decided that tax had to be paid, the individual would have to pay interest.  On the other hand, if the Revenue’s argument were correct, in circumstances where tax was paid and eventually, as in this case, it was held that the taxpayer did not have to pay tax, no interest would be payable.

17.  The argument proceeded that the 14 day period provided in section 79(1) was, in any event, too short and that it did not give the taxpayer sufficient time to decide whether to purchase the TRC or not.  It was said that the purpose of the provisions relating to the purchase of TRCs was simply to ensure that tax had been paid and it was unnecessary to have such a short period.  It was queried whether a taxpayer could challenge the requirement to purchase a TRC.

18.  In my view Article 105 of the Basic Law has no application to legitimate taxation.  Taxation is governed under Article 108 of the Basic Law which reads:

“The Hong Kong Special Administrative Region shall practise an independent taxation system.

The Hong Kong Special Administrative Region shall, taking the low tax policy previously pursued in Hong Kong as reference, enact laws on its own concerning types of taxes, tax rates, tax reductions, allowances and exemptions, and other matters of taxation.”

That is to be contrasted with Article 105 which reads:

“The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property.

Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay.

The ownership of enterprises and the investments from outside the Region shall be protected by law.”

When the Government imposes tax on the individual, of necessity it deprives the individual of his property without any right to compensation.  The 2 Articles are, as Mr Ismail, who appeared on behalf of the Commissioner, argued, mutually exclusive.

19.  In my view I can do no better than the cite from what was said by Mason CJ, Brennan J, Deane J and Gaudron J in the case of Australian Tape Manufacturers Association Ltd and others v The Commonwealth of Australia [1991-1993 177 CLR] 480 at 508 where it was said:

“A law which is in truth the law imposing taxation escapes the requirement of s. 51(xxxi) of the Constitution that an “acquisition of property… for any purpose in respect of which the Parliament has power to make laws” be “on just terms”.  See, e.g., Federal Commissioner of Taxation v Barnes (1975), 133 CLR 483, at pp. 494-495; MacCormick v Federal Commissioner of Taxation (1984), 158 CLR 622, at pp. 638, 649:

“The reason that this is so is that the relationship between the legislative powers conferred by s. 51(ii) and s. 51(xxxi) of the Constitution necessarily involves antinomy between what constitutes “taxation” (for the purposes of s. 51(ii)) and what constitutes an “acquisition of the property” (for the purposes of s. 51(xxxi)): of its nature, “taxation” presupposes the absence of the kind of direct quid pro quo involved in the “just terms” prescribed by s. 51(xxxi).”  See Federal Commissioner of Taxation v Clyne (1958), 100 CLR 246, at p. 263:

“It follows that our conclusion that the “royalty” purportedly imposed by s. 135zzp(1) is in truth a tax makes it strictly unnecessary that we consider whether, if it were not a tax, its imposition would be invalid as an unconstitutional “acquisition of property” on other than just terms.  It is, however, desirable that we indicate our view that it would.” ”

20.  There is no doubt in my mind that the payment required by the Commissioner pending resolution of the objection to tax constitutes a payment of tax.  The Ordinance makes that quite clear.  Reference may be made to sections 71, 75 and 79 amongst others and it is quite clear that the payment made on 30 August 2000, referred to in paragraph 10 of the judgment below, was a payment of tax.

21.  Mr Mok’s argument came down to the proposition that the power to tax given under Article 108 of the Basic Law, which included the power to require payment of tax in advance and then to refund that tax subsequent to a successful appeal should not impair the individual’s right to enjoyment of his property namely his money more than is necessary or proportionate.

22.  Mr Mok sought to rely on what was said in the judgment of the European Court of Human Rights in the case of The National & Provincial Building Society, The Leeds Permanent Building Society and The Yorkshire Building Society v United Kingdom 25 EHRR 127 at paragraph 80.  That read:

“According to the Court’s well-established case law, an interference, including one resulting from the measure to secure the payment of taxes, must strike a “fair balance” between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights.  The concern to achieve this balance is reflected in the structure of Article 1 as a whole, including the second paragraph: there must therefore be a reasonable relationship of proportionality between the means employed and the aims pursued.”

23.  As was pointed out by Mr Ismail in the course of argument, the Article 1 of Protocol No. 1 to which reference was being made, appeared to be a composite Article as it read:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions.  No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

24.  Article 1 was therefore a composite Article and had to be read as such.  Moreover, the second paragraph of paragraph 80 of the judgment continued:

“Furthermore, in determining whether this requirement has been met, it is recognized that a Contracting State, not least when framing and implementing policies in the area of taxation, enjoys a wide margin of appreciation and the Court will respect the legislature’s assessment in such matters unless it is devoid of reasonable foundation.”

25.  It was said that whatever arrangements there are in the Ordinance they are not proportionate.

26.  Even if it were right to construe the power to tax given under Article 108 as being subject to an overriding requirement of proportionality stemming from Article 105, and I do not for one moment consider that is correct, the question of proportionality has to be considered in the context of the case as well as the provisions of the Ordinance.  In the context of this case, the fact is that the plaintiff was given an opportunity to purchase a TRC which would have entitled it to interest.  Hence the argument that the Commissioner is entitled to interest on unpaid tax whereas the individual is not entitled to interest on tax subsequently refunded falls away.  The fact that the amount of interest may be different is of no relevance.  The sums involved are on the one hand the payment of a form of penalty and on the other putative interest.

27.  In relation to the argument that the 14 day period in section 79(1) was unduly short, in my view it cannot be said that, in the circumstances in which it was applied in this case or would be applied in any contemplated case, the period was so unreasonable that this court could begin to consider that the provision was unfair, unjust or disproportionate.  In the context of the present case, for example, the tax return and the accounts showing the profit had been filed a very long time before the requirement to purchase a TRC had been made.  In the second place even given the period from December 1999 to January 2000 the 14 day period only came after due notice that some payment was being required had been given.  The circumstances in which the 14 period would operate in any other case would be similar.

28.  In my view the judge came to the correct conclusion and I would dismiss this appeal with an order nisi that costs be in favour of the defendant.

Hon Tang VP:

Background

29.  This appeal arose out of the taxpayer’s successful appeal to the Board of Review, against the assessment for additional profits tax for 1996/1997 in the sum of $7,620,671, on the ground that the profits arose from the sale of a capital asset.

30.  The assessment is dated 10 December 1999, and required the payment on or before 21 January 2000.

31.  On 7 January 2000, the taxpayer lodged an objection under section 64(1) of the Inland Revenue Ordinance, Cap. 112.

32.  This objection was determined on 12 March 2002 against the taxpayer.

33.  In the meantime on 14 January 2000, the Commissioner made an order under section 71(2) to hold over tax pending the result of the objection, on condition that a Tax Reserve Certificate (“TRC”) in the sum of $7,620,671 be purchased not later than 28 January 2000.

34.  Section 71(2) provides that:

“(2)   Tax shall be paid notwithstanding any notice of objection or appeal, unless the Commissioner orders that payment of tax or any part thereof be held over pending the result of such objection or appeal:

Provided that where the Commissioner so orders he may do so conditionally upon the person who or on whose behalf the objection or appeal is made providing security for the payment of the amount of tax or any part thereof the payment of which is held over either –

(a)    by purchasing a certificate issued under the Tax Reserve Certificates Ordinance (Cap. 289); or

(b)    by furnishing a banker’s undertaking,

as the Commissioner may require.”

35.  The effect of such an order is that if the TRC had been purchased within 14 days of the order, the taxpayer would have been entitled to the repayment of the principal value represented by the TRC together with the interest thereon “calculated in accordance with the (relevant) rules”.

36.  No TRC was purchased by the taxpayer within 14 days or at all.

37.  Under section 71(5), the Commissioner made an order that a 5% surcharge be added to the tax.

38.  On 22 May 2000, the Commissioner sued in the District Court for the recovery of the tax payable together with the 5% surcharge.

39.  Under section 75(4), the defence that the tax is excessive or incorrect is not allowed.  On 22 June 2000, the Commissioner obtained default judgment against the taxpayer, together with interest thereon at the rate of 11.54% per annum from 22 May 2000 up to 22 June 2000 and thereafter at the judgment rate until payment and $930 fixed costs.

40.  On 9 August 2000, the Commissioner issued a final payment notice, which stated that if final payment was not made on or before 21 August 2000, the Commissioner might order that a surcharge of 10% be added.

41.  On 30 August 2000, the taxpayer made payment.

42.  Following the determination of the objection on 12 March 2002 against the taxpayer, on 26 March 2002, the taxpayer appealed to the Board of Review.

43.  On 7 August 2003, after a hearing which lasted 8 days, the assessment was set aside on the basis that the profits arose out of the sale of a capital asset, and hence not taxable under section 14.

44.  Following the decision of the Board of Review, the Commissioner on 5 September 2003, effectively repaid the tax paid of $7,620,671.  I ignore the deductions in relation to other amounts payable to the Commissioner.

45.  On 25 September 2003, following correspondence, the 5% surcharge together with the interest paid and fixed costs were refunded to the taxpayer.

46.  The taxpayer claimed that it was entitled to interest on the sum paid since 20 August 2000 and on the Commissioner’s refusal to pay such interest, started proceedings in Court of First Instance.

47.  After a four-day trial, on 1 August 2005, Deputy Judge Gill dismissed the taxpayer’s claim.

48.  This is the taxpayer’s appeal.

The issues

49.  Mr Mok SC, for the taxpayer, relies on two primary submissions:

(1) That the taxpayer is entitled to interest on the claim against the Commissioner based on unjust enrichment.

(2) Insofar as the taxpayer was required to make payment, that was a lawful deprivation of the taxpayer’s property, such that under Article 105 of the Basic Law (“BL 105”), the taxpayer was entitled to compensation which should “correspond to the real value of the property concerned at the time …”.

50.  Mr Ismail, for the respondent, submitted in turn that:

(1) The taxpayer’s rights are to be found exclusively in the Ordinance, in particular, section 79(1),

(2) BL 105 is inapplicable, there was no lawful deprivation of property.  BL 108 governs the power of the Government of Hong Kong Special Administrative Region (“HKSARG”) regarding taxation.

51.  In retort, Mr Mok submitted:

(1) Section 79 is inapplicable.

(2) In any event, section 79 does not exclude the common law claim for unjust enrichment.

(3) BL 108 has no application, since any amount which is in excess of tax actually payable is not truly a tax.  It matters not whether it is not payable because it is ultra vires or not.

Section 79(1)

52.  Section 79(1) reads as follows:

“(1) If it is proved to the satisfaction of the Commissioner by claim duly made in writing within 6 years of the end of a year of assessment or within 6 months after the date on which the relevant notice of assessment was served, whichever is the later, that any person has paid tax in excess of the amount with which he was properly chargeable for the year, such person shall be entitled to have refunded the amount so paid in excess:

Provided that nothing in this section shall operate to extend or reduce any time limit for objection, appeal or repayment specified in any other section or to validate any objection or appeal which is otherwise invalid, or to authorize the revision of any assessment or other matter which has become final and conclusive.”

53.  I agree with Rogers VP that section 79(1) covers the present case.

54.  In other words, the taxpayer has the statutory right to the refund of the tax paid.

55.  Indeed, prior to the reformulation of the law of restitution by the House of Lords in Woolwich Equitable Building Society v Inland Revenue Commissioners (H.L.(E.)) [1993] AC 70, if section 79(1) was not construed so as to cover the situation of the taxpayer, then the taxpayer’s position would have been highly uncertain.

56.  Of course, section 79(1) is not confined to the situation of the taxpayer here.  It is much wider in scope.  Its language is wide enough to cover the taxpayer’s situation.

Only remedy

57.  So the question here is whether section 79(1) which provided specifically for the restitution of overpaid tax, has displaced any general common law principles which afford a similar right.

58.  Whether section 79(1) has that effect is a matter of construction.  See British Steel plc v Customs and Excise Commissioners [1997] 2 All ER 366 at 376D per Scott VC (as he then was).

59.  Woolwich, the case much relied on by Mr Mok, concerned ultra vires regulations, and in that case, as the passages from the judgment of Lord Goff of Chieveley at page 169D show, there was no statutory right to repayment of the tax paid.  Indeed, but for the reformulation of the law of restitution, Woolwich would have had no remedy at all.

“… This is because the present case is not one in which an excessive assessment was made on a taxpayer, through some error of fact or law, as is contemplated by section 33(1). This is a case where there was no lawful basis whatever for any demand of tax to be made by the revenue. In such circumstances, the demand itself is ultra vires and is therefore a nullity. It follows that in a case such as the present there can be no valid assessment. No assessment was in fact raised on Woolwich in the present case, because the money alleged to be due by way of tax was paid, though under protest. It was pointed out in argument that, pursuant to regulation 7 of the Income Tax (Building Societies) Regulations 1986, tax which was due but not paid on or before the due date could have been the subject of an assessment on Woolwich under paragraph 4(2) or (3) of Schedule 20 to the Finance Act 1972; but for the reasons I have already given any such assessment would, in my opinion, have been a nullity in the circumstances of the present case. In particular, I do not see how there could have been an appeal against such an assessment pursuant to paragraph 10(3) of Schedule 20; because such an appeal presupposes an assessment which, apart from the impugned error, would otherwise have been valid. If the assessment is alleged to have been made (as here) under ultra vires regulations, the proper course is to take proceedings by way of judicial review to quash the aberrant regulations and the assessment made thereunder, not by way of an appeal under procedure which presupposes that the assessment, although it may be erroneous, is basically lawful. Just as the appeal procedure presupposes a lawful assessment, so does section 33(1) of the Act of 1970, which is concerned with a lawful assessment which is excessive by reason of some error or mistake in a return.  This, as I understand it, was the view accepted by Nolan J. [1989] 1 W.L.R. 137, 148E, and by Butler-Sloss L.J., ante, p. 141G-H, whose view on this point I respectfully prefer to that of Ralph Gibson L.J., ante, pp. 131G-132B, despite the doubt expressed in paragraph 3.38 (p. 84) of the Law Commission’s Consultation Paper.

This is, in my opinion, a point of some significance in the present case. It is for these reasons that Woolwich is not enabled or required to seek its remedy through the statutory framework, but must fall back on the common law. It also follows that the common law principles, whatever they may be, are applicable to a case such as the present, unconstrained by the provisions of any statute.”

60.  Section 33 of the Taxes Management Act 1970 bears comparison with section 79(1), subsections (1) and (2) of section 33 provide:

“(1) If any person who has paid tax charged under an assessment alleges that the assessment was excessive by reason of some error or mistake in a return, he may by notice in writing at any time not later than six years after the end of the year of assessment (or, if the assessment is to corporation tax, the end of the accounting period) in which the assessment was made, make a claim to the Board for relief.

(2) On receiving the claim the Board shall inquire into the matter and shall, subject to the provisions of this section, give by way of repayment such relief … in respect of the error or mistake as is reasonable and just: Provided that no relief shall be given under this section in respect of an error or mistake as to the basis on which the liability of the claimant ought to have been computed where the return was in fact made on the basis or in accordance with the practice generally prevailing at the time when the return was made.”

61.  In my opinion, as a matter of construction, section 79(1) provides the taxpayer with an exclusive remedy.  It could not have been intended that the taxpayer should have a choice of remedies.  No doubt, when section 79(1) was enacted, it was enacted to provide the taxpayer with a remedy which was otherwise not available at common law.  So the question here is whether, notwithstanding Woolwich, as a matter of construction, section 79(1) should be taken to have excluded any other remedy.

62.  In British Steel, the fact that the questions the court had to decide were of only historic relevance, because as Scott VC explained the legislation had been amended (but not retrospectively).  The amendment (by section 20(1) of the Finance Act 1995), provided that:

“Where a person pays to the Commissioners an amount by way of excise duty which is not due to them, the Commissioners are liable to repay that amount.

……

Except as provided by this section the Commissioners are not liable to repay an amount paid to them by way of excise duty by reason of the fact that it was not due to them”.

63.  Section 79(1) is not so explicit.

64.  However, as appears from Woolwich itself, had section 33 of the Taxes Management Act 1970 been applicable, the House of Lords might have concluded that the common law right of restitution had been excluded.

65.  Lord Keith of Kinkel, in his dissenting judgment said at 161C:

“To give effect to Woolwich’s proposition would, in my opinion, amount to a very far reaching exercise of judicial legislation.  That would be particularly inappropriate having regard to the considerable number of instances which exist of Parliament having legislated in various fields to define the circumstances under which payments of tax not lawfully due may be recovered, and also in what situations and upon what terms interest on overpayments of tax may be paid.  Particular instances are section 33 of Taxes Management Act 1970 as regards overpaid income tax, corporation tax, capital gains tax and petroleum revenue tax; section 24 of the Finance Act 1989 as regards value added tax; section 29 of the Finance Act 1989 as regards excise duty and car tax; section 241 of the Capital Transfer Tax Act 1984 as regards inheritance tax; and section 13(4) of the Stamp Act 1891 (54 & 55 Vict. C. 39) as regards stamp duty.  Mention may also be made of section 9 of the General Rate Act 1967 which, as described above was, considered by this House in Reg. v . Tower Hamlets London Borough Council, Ex parte Chetnick Developments Ltd. [1988] A.C. 858.  It is to be noted that the section only applies where overpayment of rates is not otherwise recoverable, and it plainly did not occur to the House in that case that the overpayment might be recoverable apart from the section.  It seems to me that formulation of the precise grounds upon which overpayments of tax ought to be recoverable and of any exceptions to the right of recovery, may involve nice considerations of policy which are properly the province of Parliament and are not suitable for consideration by the courts.  In this connection the question of possible disruption of public finances must obviously be a very material one.  Then it is noticeable that existing legislation is restrictive of the extent to which interest on overpaid tax (described as ‘repayment supplement’) may be recovered.  A general right of recovery of overpaid tax could not incorporate any such restriction.”

66.  Here, section 79(1) read together with section 71, has defined “the circumstances under which payments of tax not lawfully due may be recovered, and also in what situations and upon what terms interest on overpayment of tax may be paid”.  I am in respectful agreement with the sentiments expressed by Lord Keith.

67.  Lord Goff said at 177G:

“The third is that, turning Mr. Glick’s argument against him, the immediate practical impact of the recognition of the principle will be limited, for (unlike the present case) most cases will continue for the time being to be regulated by the various statutory régimes now in force.”

68.  This read together with the passages cited in para. 59 above suggests that had section 33 of the Taxes Management Act 1970 been applicable, Lord Goff might well have concluded that recovery could only be obtained under section 33.

69.  Lord Slynn of Hadley said at 200E:

“Because of the other legislative provisions dealing with repayment of various taxes it seems in any event that the number of cases where any principle of common law would need to be relied on is likely to be small.  The ‘flood gates’ argument is therefore not a persuasive one in this case.  If it were a risk, then the revenue would need to consider appropriate legislation.”

70.  Mr Mok submitted that section 79(1) was silent on interest, and that it would be unfair if the taxpayer should be required to make a massive interest-free loan to the HKSARG.  He pointed to section 71 and submitted that there was inequality of treatment insofar as the taxpayer was liable to pay interest, if the payment of the tax is held over otherwise than by the purchase of TRC, in the event of the taxpayer’s objection or appeal being unsuccessful, whereas the Commissioner would not liable to pay any interest, unless he in his discretion had ordered the purchase of TRC.

71.  But this involves “nice considerations of policy which are properly the province of Parliament and are not suitable for consideration by the courts”.  See per Lord Keith above.

72.  In any event, this is essentially a question of construction.

73.  Section 71 gives the Commissioner a discretion to permit the holdover of tax on the purchase of TRC.  As noted above, if TRC had been purchased, interest calculated in accordance of the relevant rules would then be payable in the event of the objection or appeal succeeding.

74.  Mr Mok has made no submission on the adequacy on the interest payable under the TRC.  He seemed to have accepted, and if so, in my view rightly, that interest calculated in accordance of such rules, may be a reasonable recompense for tying up the taxpayer’s money.

75.  Mr Mok submitted, however, that since under section 71(2), the TRC has to purchase within 14 days of the order the period is too short or may be too short.  Furthermore, it was in the Commissioner’s discretion whether or not to permit the purchase of TRC.

76.  However, as the Departmental Interpretation And Practice Notes No. 6 (Revised) shows the Commissioner’s discretion is exercised in accordance with the established policy under which an unconditional stand over may be ordered if the Commissioner is of the view that upon receipt of a objection and request for holdover, “it is immediately apparent” that the objection should be allowed.  That no stand over would be ordered if the opinion of the Commissioner, the objection has little chance of success, but that purchase of TRC would be ordered if the Commissioner is of the opinion “that the objection has some merit but that the balance of probability, based on the facts known to exist at the date of the objection, does not weigh definitely in favour of the taxpayer”.

77.  Therefore, reading section 79(1) together with section 71, I am of the view that the statutory scheme relating to holdover or the payment of interest, is not so unreasonable that one should strain to construe section 79(1) to leave the intact the common law right to recovery on restitution.

BL 105

78.  BL 105 provides:

“Article 105

The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property.

Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay.

The ownership of enterprises and the investments from outside the Region shall be protected by law.”

79.  Mr Mok did not submit in any depth on the meaning and effect of BL 105.  In my opinion, BL 105 has no application.  “Deprivation”, in BL 105, is used in the sense of expropriation, which is the expression used in its original Chinese.  In my opinion, BL 105 concerns essentially a taking, as under eminent domain.  I do not believe that suing for tax by action or for example, the recovery of a penalty or fine by action, even if it subsequently turned out to be wrong, would amount to or come within the scope of lawful expropriation under BL 105.

80.  BL 108 governs the HKSARG’s power to tax.  BL 108 provides:

“Article 108

The Hong Kong Special Administrative Region shall practise an independent taxation system.

The Hong Kong Special Administrative Region shall, taking the low tax policy previously pursued in Hong Kong as reference, enact laws on its own concerning types of taxes, tax rates, tax reductions, allowances and exemptions, and other matters of taxation.”

81.  I have no doubt that the Ordinance, which provided for objections and appeals, came within the ambit of BL 108, so that a payment which turned out not to have been payable because of a successful objection or appeal is nevertheless covered by BL 108.

82.  Hence I do not agree with Mr Mok’s submission that, because the tax was not payable under section 14, the payment made was not covered by BL 108.  He submitted that only taxes properly payable under the Ordinance are covered by BL 108.  Thus, there is no difference between an excessive assessment, whether due to mathematical errors or otherwise, and a payment which was made pursuant to an ultra vires regulation.  I do not believe that is so.  In any event, I do not believe that a genuine attempt to tax, even though it ultimately turned out to be wrong, amounted to lawful expropriation under BL 105.

83.  Mr Mok relies on the decision of National & Provincial Building Society, Leeds Permanent Building Society and Yorkshire Building Society v the Untied Kingdom 25 EHRR 127.  This decision of the European Court of Human Rights, concerned the same ultra vires regulations which were successfully challenged in Woolwich.  Following Woolwich’s successful challenge and the House of Lords’ decision that those regulations were ultra vires, other building societies commenced proceedings for restitution and for judicial review for a declaration that the regulations were ultra vires and therefore unlawful.  However, in the meantime, section 53 of the Finance Act 1991, was enacted which provided that the transitional regulations which had been found to be invalid, were retrospectively validated, save that it did not apply to building societies which had brought proceedings before 18 July 1986, namely Woolwich.  That was followed by section 64 of the Financial (No. 2) Act 1992, which provided that the Treasury Orders be taken to have always been effective, thus extinguishing the remaining legal proceedings lodged by these other building societies.  They invoked Article 1 of Protocol 1 of the convention which provides as follows:

“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other contributions or penalties.”

84.  In the majority judgment of the European Court of Human Rights at para. 80, the majority set out the applicable principles:

 “80. According to the Court’s well-established case law, an interference, including one resulting from a measure to secure the payment of taxes, must strike a ‘fair balance’ between the demands of the general interest of the community and the requirements of the protection of the individual’s fundamental rights. The concern to achieve this balance is reflected in the structure of Article 1 as a whole, including the second paragraph: there must therefore be a reasonable relationship of proportionality between the means employed and the aims pursued.

Furthermore, in determining whether this requirement has been met, it is recognised that a Contracting State, not least when framing and implementing policies in the area of taxation, enjoys a wide margin of appreciation and the Court will respect the legislature’s assessment in such matters unless it is devoid of reasonable foundation.”

85.  Mr Mok submitted that BL 105 and 108 should be read in the same way.  In other words, the court must strike a fair balance, so that there must be a reasonable relationship of proportionality between the means employed and the aims pursued.  He submitted that if one were to apply the proportionality test, section 79(1) whether read alone or considered together with section 71, failed the test.  I do not believe it is right to read BL 105 and 108, as if the right of the HKSARG to tax has to strike such a fair balance.  Rather, I am of the view that unless the taxation scheme cannot be regarded as genuine, but was in fact a disguised expropriation of property, BL 105 has no application.  And the court has no power to interfere.  Mr Mok accepted that, on his submission, even if the Ordinance had provided for the payment of interest, that would not be a sufficient compliance with BL 105, unless the interest so provided corresponded to “the real value of the property concerned at the time”.  I do not believe BL 105 could have such wide ranging effect.

86.  The joint judgment of the court in the decision of High Court of Australia in Australian Tape Manufacturers Association and Ors v The Commonwealth of Australia [1993] 176 CLR 480, at 509, helps to illustrate the point:

“The answer to the question whether a legislative imposition of an obligation to pay money involves an ‘acquisition of property’ for the purposes of s.51(xxxi) of the Constitution must depend upon the context in which the obligation is imposed. If, for example, a law did no more than provide that a particular named person was under an obligation to pay to the Commonwealth an amount of money equal to the total value of all his or her property, the law would effect an acquisition of property for the purposes of s.51(xxxi), notwithstanding the fact that it imposed merely an obligation to pay money and did not directly expropriate specific notes or coins. In that regard, the comment of a majority of the Court in MacCormick v. Federal Commissioner of Taxation that a tax is ‘no more than the imposition of a pecuniary liability’ (12) must be understood in context and does not constitute authority for a general proposition that the imposition of an obligation to pay money can never constitute an ‘acquisition of property’ for the purposes of s.51(xxxi). Section 51(xxxi)’s guarantee of just terms is not to be avoided by ‘a circuitous device to acquire indirectly the substance of a proprietary interest’ (13). In a case where an obligation to make a payment is imposed as genuine taxation, as a penalty for proscribed conduct, as compensation for a wrong done or damages for an injury inflicted, or as a genuine adjustment of the competing rights, claims or obligations of persons in a particular relationship or area of activity, it is unlikely that there will be any question of an ‘acquisition of property’ within s.51(xxxi) of the Constitution (14).  On the other hand, the mere fact that what is imposed is an obligation to make a payment or to hand over property will not suffice to avoid s.51(xxxi)’s guarantee of ‘just terms’ if the direct expropriation of the money or other property itself would have been within the terms of the sub-section. Were it otherwise, the guarantee of the section would be reduced to a hollow facade.”

87.  So here, I do not accept Mr Mok’s submission that there has been an expropriation of the property of the taxpayer.  In other words, the Commissioner was not seeking to take away the property of the taxpayer, but to recover that which was due to the Commissioner.  If the Commissioner turned out to be wrong, the taxpayer would have his remedies, but the remedies would not depend on BL 105.  Here, the statutory remedy is to be found in the Ordinance in particular section 79(1).  It is then a question of construction whether in addition to the statutory remedy, the taxpayer has other remedies at common law.  If so, again, they do not depend on BL 105.  On my construction of section 79(1), the only remedy is to be found in the Ordinance.

88.  For the above reasons, I dismiss the appeal.

Hon Le Pichon JA:

89.  I agree with the judgment of Rogers VP and the order he proposes.

Hon Rogers VP:

90.  There will therefore be an order in terms of paragraph 28 above.