EDWARD CHOW KWONG FAI v. INLAND REVENUE BOARD OF REVIEW

HCAL 47/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST
NO.47 OF 2004

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J U D G M E N T

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1. The applicant seeks by way of judicial review to challenge the refusal of the Inland Revenue Board of Review ('the Board') to state a case for consideration by the Court of First Instance pursuant to section 69 of the Inland Revenue Ordinance, Cap.112.

2. The applicant seeks an order of certiorari quashing the decision to refuse to state a case and an order of mandamus directing the Board to state a case for the opinion of the Court of First Instance in respect of the majority of the eight questions of law which were originally placed before it.

Background

3. The applicant objected to an assessment raised in respect of his income for the year of assessment 1996/1997. He claimed that any financial gain derived by him during that year from the exercise of certain share options should not be the subject of assessment.

4. The Commissioner, it appears, took more than two years to consider this objection; on the face of it, a surprisingly long time. His determination was issued on 26 July 2002. It was delivered to the applicant the next day; that is, 27 July 2002. In his determination, the Commissioner reduced the amount assessed but did not reduce it sufficiently to satisfy the applicant.

5. The applicant sought to appeal the Commissioner's determination. His right to do so is contained in section 66 of the Ordinance. In this regard, section 66(1) reads :

" Any person (hereinafter referred to as the appellant) who has validly objected to an assessment but with whom the Commissioner in considering the objection has failed to agree may within -

(a)	1 month after the transmission to him under section 64(4) of the Commissioner's written determination together with the reasons therefor and the statement of facts; or
(b)	such further period as the Board may allow under subsection (1A),

either himself or by his authorized representative give notice of appeal to the Board; but no such notice shall be entertained unless it is given in writing to the clerk to the Board and is accompanied by a copy of the Commissioner's written determination together with a copy of the reasons therefor and of the statement of facts and a statement of the grounds of appeal."

6. From a reading of the section it is apparent that the Board has a discretion to grant an appellant an extension of time within which to file his notice of appeal and its accompanying material. This is spelt out clearly in section 66(1A) which reads :

" If the Board is satisfied that an appellant was prevented by illness or absence from Hong Kong or other reasonable cause from giving notice of appeal in accordance with subsection 1(a), the Board may extend for such period as it thinks fit the time within which notice of appeal may be given under subsection (1) ... "

7. In the present case, the applicant failed to submit his notice of appeal within the one month period provided for in section 66(1). Indeed, the notice of appeal was not filed until 25 November 2002, three months out of time. The Board, in hearing the appeal, was therefore obliged as a preliminary issue to consider whether to exercise its discretion to condone the late filing.

8. The Board handed down its decision in this regard on 28 March 2003. The Board said the following :

"The Appellant's grounds of appeal can be summarised as follows :

The Commissioner took more than 21/2 years to issue the Determination on the Appellant's objection to the original assessment. The Appellant thought that his objection had been allowed. As a result, he disposed of or otherwise misplaced many of the relevant documents needed for the Appeal.

Due to 2 successive changes in the controlling shareholders board, management, company name, nature and place of business of the Hwa Kay Thai Group which employed him, the Appellant could not gain access to relevant documents or obtain any assistance from personnel having knowledge of the case.

Consequently, the Appellant had great difficulty in preparing his appeal within the period of one month as he could only rely on published annual reports and his former colleagues who were not easy to contact.' "

The Board continued :

"The Appellant is a highly intelligent professional accountant with considerable experience. At the material time, he occupied the senior position of managing director in the Hwa Kay Thai Group. He was among the directors responsible for the allocation and award of share options in respect of the various divisions of the group. Indeed, according to the appellant, share option matters were primarily handled by him and Mr Wong Chong Shan, executive chairman and controlling shareholder of the group. The Appellant should be familiar with the essential materials concerning his own share options. He did not need to be in possession of all the documents or witnesses' statements before he was in a position to formulate his grounds of appeal. The seeming delay on the part of the Commissioner in issuing his Determination should not have prevented the Appellant from filing his notice of appeal within time according to the statutory requirements."

The Board went on to say :

"At the hearing, the Appellant stated that he submitted his final objection to the Commission on 12 October 1999. He thought he had presented a convincing case. He did not hear from the Commissioner for a long interval. Eventually, on 27 July 2002, he received the Commissioner's Determination. By that time, he had assumed that his objection had been allowed by the Commissioner with the result that he had disposed of or otherwise misplaced the documents relevant to his case. There was no genuine basis or justification for such an assumption. It is inconceivable that the Appellant should have made such an assumption merely because the Commissioner's Determination was not forthcoming and he did so to his own detriment."

9. The Board reminded itself that its power to grant an extension of time was not unlimited in that it could only grant an extension if an appellant had been prevented by illness or absence from Hong Kong or other 'reasonable' cause from giving notice of appeal within the prescribed period. In conclusion, the Board said :

"We have carefully considered all the facts and matters put before us by the Appellant and by the Commissioner's representative and the previous decisions of the Board above referred to. In all the circumstances, we are not satisfied that the Appellant has shown any ground upon which we can justifiably exercise our discretion to grant any extension of time to the Appellant. Accordingly, we dismiss appeal."

The request to state a case

10. After the Board had declined to grant leave to the applicant to appeal out of time, the applicant sought to have the Board's decision referred to the Court of First Instance by way of a case stated in terms of s.69 of the Ordinance. In terms of the section, a case that is stated by the Board - for it is the Board's responsibility to do so - is restricted to a question (or questions) of law. In so far as it is of direct relevance, s.69 reads :

"(1) The decision of the Board shall be final :

Provided that either the appellant or the Commissioner may make an application requiring the Board to state a case on a question of law for the opinion of the Court of First Instance. Such application shall not be entertained unless it is made in writing and delivered to the clerk to the Board, together with a fee of $640, within 1 month of the date of the Board's decision. If the decision of the Board shall be notified to the Commissioner or to the appellant in writing, the date of the decision, for the purposes of determining the period within which either of such persons may require a case to be stated, shall be the date of the communication by which the decision is notified to him." [my emphasis]

11. Through his legal representatives, the applicant put forward eight questions, those questions to be the subject of the case stated. Although the questions arose out of factual circumstances, the applicant did not consider them to be questions of fact but, in each instance, to be questions of law.

12. The Board did not agree. It rejected the applicant's contention that the questions were questions of law. In the opinion of the Board, each question was a question of fact and could not therefore be the subject of a case stated pursuant to s.69(1). The Board's findings were stated in its decision of 5 January 2004, this being the single decision challenged in the proceedings now before me. In the final paragraph of its decision, the Board said :

"Having considered the Taxpayer's application to state a case carefully, we have come to the conclusion that all the 8 questions put forward on behalf of the Taxpayer are not proper questions of law on which to state a case for the opinion of the Court of First Instance. We hereby refuse the Taxpayer's application and decline to state a case."

13. The Board, of course, being required in terms of section 69(1) of the Ordinance to state a case, was responsible for ensuring that it related to questions of law only and not to issues of fact dressed up as issues of law.

The Board choosing not to be represented

14. The Board chose not to be represented at the hearing before me. This is in accordance with custom and is entirely appropriate. However, it meant that, in the absence of any interested party wishing to be heard, that I have only been able to obtain the assistance of counsel for the applicant, Mr Ho Chi Ming.

What is the most effective procedure?

15. During the course of the hearing, I asked Mr Ho whether, on the basis that the issue in contention was the reasonableness (in the public law sense) of the Board's refusal to allow the applicant to appeal to it out of time, it would not have been more appropriate to come direct to this court to seek a judicial review of that challenge rather than to seek to proceed, in respect of the identical issue, in terms of s.69 by way of case stated. In the present instance, with the Board being of the view that there was no question of law to be stated, there has been an unfortunate expansion of proceedings. I say that because this judicial review, which could dispose of the real issue in question, will do no more than determine whether that issue should come back to this court at a later date for determination in another form; namely, as a case stated.

16. In my view, common sense and economic prudence dictate that a direct challenge by way of an application for judicial review is more appropriate when the lawfulness of a decision of the Board is challenged on classic judicial review grounds, for example, on the basis that it is Wednesbury unreasonable, rather than on the basis that the Board has, for example, wrongly directed itself in respect of a discrete point of law.

17. But that being said, Mr Ho has been able to present to me a number of authorities which, while they may not encourage the procedure adopted in the present instance, nevertheless accept as permissible the process of advancing matters by way of case stated when public law issues arise. In particular, he has drawn my attention to a judgment of the Court of Appeal - Chinachem Investment Company Limited v. The Commissioner of Inland Revenue (1989) 1 HKRC 110 - in which Sir Alan Huggins VP dealt with the exact issue to which I refer. In this regard he said the following :

"All too often the case stated process is adopted in an attempt to raise as an issue of law what is, in truth, an issue of fact. Some of the questions posed for the consideration of the High Court show this to have been such a case. It is one thing to allege that a tribunal has found a fact which was unsupported by any evidence : that raises an issue of law. It is quite another thing to allege that a tribunal of fact has disregarded evidence or that the evidence did not substantiate a finding.

There is another aspect of the matter which calls for a mention. It was argued that some of the matters raised before the High Court were such that they should have been made the subject of an application for judicial review and not an appeal by way of a case stated. Whilst there may be some logic in the argument, I am satisfied that convenience and avoidance of a multiplicity of proceedings may justify the taking by way of a case stated of some points for which the process was not designed. Thus, it is contended here that the Chairman of the Board of Revenue entered into the arena so as to flagrantly breach the rules of natural justice." [my emphasis]

The Vice President then looked to certain English authorities in which it was accepted that issues of this kind may be heard by way of case stated and went on to say :

"Strictly, therefore, the complaint that there had been a breach of the rules of natural justice ought not to have been entertained on the appeal. However, no point was taken before the judge or before us that the matter ought not to be argued. It was argued at length and we think there is no substance in it. Accordingly, I think that it is right we should give our reasons for so thinking." [my emphasis]

18. It is apparent from these observations of the Vice President that, in respect of classic judicial review matters such as procedural fairness and rationality, it is best to proceed by way of judicial review but that, if the same issues are taken forward by way of case stated, while not correct, it may still be procedurally acceptable. In future, of course, with the increasing need for the courts to ensure the most economic expedition of matters before it, the more liberal approach of the past may not be condoned, especially when, as in the present case, it adds to the risk of a multiplication of proceedings.

Irrationality and procedural fairness are matters of law

19. Mr Ho, in a very thorough presentation, referred me to a number of authorities in which issues of irrationality and/or procedural unfairness were made the subject of questions of law pursuant to s.69(1) and were determined to be so by the courts.

20. In his judgment in the case of All Best Wishes Limited v. Commissioner of Inland Revenue 3 HKTC 750, Mortimer J (as he then was) said the following :

"It was submitted by Mr Barlow for the Commissioner of Inland Revenue that an appeal as wide as that is not open on the case stated. On this matter, I am against Mr Barlow. It seems to me that it is open to the court to consider the question whether the decision was unreasonable or perverse. Even though those words do not appear in the case stated, I have heard submissions on the matter which I do not propose to rehearse. It seems to me that the distinction between a submission that the decision was unreasonable or perverse and whether there was no evidence upon which certain decisions could be reached may come to the same thing."

21. In this regard, Mortimer J cited with approval the dictum of Lord Radcliffe in Edwards v. Bairstow [1965] AC 14 36 :

"So there, too, there has been an error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination or is one in which the evidence is inconsistent with and contradictory of the determination or is one in which the true and only reasonable conclusion contradicts the determination. Rightly understood, each phrase propounds the same test."

22. In so far as it is necessary to look to other authorities, I have also been referred by Mr Ho, who has been industrious in this regard, to a 1978 Scottish decision, namely that of R and D McKerron v. Commissioners of Inland Revenue Tax Cases, Vol.53.28, in which the President of the Court of Session said :

"At the hearing before us, it became clear that the question of law stated in the case was misconceived and that the true question at issue, as counsel for the Crown agreed, was whether, in refusing the solicitor's request to be heard, the Commissioners exercised their discretion reasonably and in a judicial way. There is no doubt that we can apply our minds to this ..."

The questions of law proposed by the applicant

23. I do not intend to conduct a forensic examination of each of the eight questions of law drafted by the applicant's legal representatives for consideration by the Board. It is not necessary. On an objective reading it is, in my view, apparent that, when read together, the questions raise two issues which, although perhaps unfortunately a little too loosely defined, nevertheless are issues of law and not of fact. The first issue is whether the decision of the Board was rational; that is, whether it was a decision open to a reasonable Board or whether it lay outside of the lawful parameters of the Board's discretion. The second issue, partially included in the first, is whether the applicant was wrongly advised as to appropriate procedure by an officer of the Board and, in following that advice, thereby acted to his own disadvantage. In short, whether the applicant was the victim of procedural unfairness.

The issue of rationality

24. Although, as I have said, the questions placed before the Board could, in my opinion, have been better phrased, and although, as I read them, no specific mention is made of terms such as 'reasonableness' or 'rationality', I am satisfied that the questions, read as a whole, do raise issues of the lawfulness of the Board's decision and those issues plainly arise out of contentions that the decision was not 'reasonable' or 'rational' as those terms are understood in public law.

25. The merits of the issue are, of course, another matter and not for this Court.

The issue of procedural unfairness

26. During the course of the hearing, the applicant told the Board that, when he realised he was facing difficulties in meeting the deadline for submission of his notice of appeal, he contacted an officer of the Board to ask what he should do. He was told, he said, that he could not seek an extension of time until he was able to lodge his notice of appeal and that, therefore, if he could not lodge his notice of appeal within one month, he should accept the risks and file his notice when he was able to do so.

27. That advice, if it was given, was logically contradictory. The very purpose, quite patently, of seeking an extension of time is because it is not possible to file the notice of appeal. If the notice (and the required accompanying material) was prepared, there would be no need to seek an extension. But, that being said, the applicant's assertions as to the advice he received were not challenged.

28. In my judgment, without going to the merits, I believe it to be arguable, as a matter of substantive law, that if a representative of the Board misrepresented the true position to the applicant, a lay person, that may have resulted in a procedural unfairness that should have been taken into account by the Board. Whether it was taken into account at all or in this particular manner is not evident from the face of the Board's decision.

Conclusion

29. For the reasons given, it seems to me that the questions drafted by the applicant's legal representatives were questions of law. I pause only to observe that it is often difficult to differentiate - and the courts must constantly struggle with the issue - between what are correctly issues of law and what are correctly issues of fact. However, in my view, the questions of law may be summarised as follows. First : "Did the Board reach a decision which no reasonable decision-maker could reach?". Second : "Did the Board, in reaching its decision, fail to give due weight to the procedural unfairness (if found to be such) visited upon the applicant by a misrepresentation as to procedural requirements made to him by an officer of the Board?"

30. Accordingly, I will grant the application. The decision of the Board is quashed and I order that the questions which the applicant wishes now to go forward will go forward.

Should I hear the case stated?

31. In coming to my determination, I have been compelled to look to a degree to the merits of the questions. That being the case, I believe it may invite criticism of perceived bias or of already having formed a view on the merits of the questions of law if I was to hear the case stated. I will not hear the case stated.

Costs

32. I have already indicated that I am concerned that, notwithstanding the authorities which have been presented to me, this is a case in which the challenge to the exercise of the Board's discretion should have been made by way of judicial review and not by the more cumbersome process, in the circumstances of this case at least, of a case stated. The expense of litigation is notorious. The complexity of procedure is one which often bewilders and frustrates the layman. I am concerned at this moment that there may, in this instance, have been a failure to look to these dangers. In the circumstances, I will reserve the question of costs, leaving it to the applicant, after the case stated has been heard by the Court of First Instance, to return to me to seek costs. I will then be in a position to look to the question of culpability, or lack of it, on a broader and more equitable basis.