The Commissioner of Inland Revenue, Hong Kong v. Lee Lai Ping

HEADNOTE

Constitutional and Administrative Law - Articles 8, 10 and 22 of the Bills of Rights - Sections 75(3), (4) and 77 of the Inland Revenue Ordinance.

IN THE DISTRICT COURT OF HONG KONG

Holden at Hong Kong

CIVIL JURISDICTION

(Action No. 1541 of 1992)

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JUDGMENT

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Cheung, J.:

I am delivering this judgment in Court in view of the importance of the issues raised.

Nature of Application

2. There are 2 applications before me. The first is an application by the Commissioner of Inland Revenue ("the Commissioner") to strike out the Defence of the Defendant ("the taxpayer") on the ground that the Defence discloses no reasonable defence. The Commissioner is claiming against the taxpayer the sum of $229,845.00 being part of the profit tax assessed of a business belonging to her son who died in 1988. The taxpayer is the administratrix of her son's estate. The taxpayer in her Defence contended that no business or trading was carried out by her son and she was not liable to pay any profit tax. The Commissioner relies on Section 75 of the Inland Revenue Ordinance (the "Ordinance") which provides for the recovery of tax due and payable in the District Court as a civil debt. Section 75(4) provides that in proceedings under that section that Court shall not entertain any plea that the tax is excessive, incorrect, subject to objection or under appeal. Section 75(3) further provides that in proceedings for the recovery of tax, a certificate signed by the Commissioner stating, inter alia, the particulars of the tax due by the taxpayer, shall be sufficient evidence of the amount so due and shall be sufficient authority for a District Court to give judgment for the said amount. The taxpayer, however, contends that Sections 75(3) and (4) are inconsistent with Articles 10 and 22 of the Hong Kong Bills of Rights Ordinance ("Bill of Rights").

3. The other application is an application by the taxpayer to discharge the Direction made by His Honour Judge Cameron on 25th October 1990 under Section 77 of the Ordinance in which he directed the Commissioner of Police to prevent the taxpayer from leaving Hong Kong. The Direction is what is commonly known as the "Stop Order.". The basis of the taxpayer's challenge is that Section 77 is inconsistent with Articles 8, 10 and 22 of the Bills of Rights.

Background

4. According to the affirmation of the taxpayer and the information provided at the hearing, the background of the case is as follows :

1. The son of the taxpayer had in 1985 registered a business known as "Leung Lee Seafood Wholesale". He was the sole proprietor of the business.

2. The son died on 23rd November 1988 at the age of 24.

3. Upon his death, his estate was found to consist of 3 bank accounts, with credit balances of HK$17,136.19, HK$22.24 and U.S. $140,141.11 respectively.

4. Letters of Administration was granted to the taxpayer on 20th October 1989.

5. The Commissioner on 30th May 1990 issued eight notices of assessment to the taxpayer for profit tax in the sum of $880,000.00 for the years 1985 to 1989. The tax was assessed on the estimated profits made by the son trading as Leung Lee Seafood Wholesale and trading as Lui Kim Kei. Lui Kim Kei was the name of the son.

6. The taxpayer lodged an objection to the assessment on 29th June 1990.

7. On 5th July 1990, the Commissioner informed the taxpayer that the whole of the tax assessed of her son trading as Lui Kim Kei had been unconditionally withheld pending the result of the objection. In respect of the tax assessed of her son trading as Leung Lee Seafood Wholesale in the sum of $448,945.00, half of which had been unconditionally withheld but the balance in the sum of $218,900 had to be paid on 11th July 1990.

8. The taxpayer did not pay the tax as demanded and on 16th August 1990 a surcharge notice was issued by the Commissioner.

9. Also on 16th August 1990, representative of the Commissioner interviewed the daughter of the taxpayer.

10. On 25th October 1990, the Commissioner obtained the Direction from His Honour Judge Cameron which was executed in November 1990 when the taxpayer was stopped at the Macao Ferry Terminal. She was on her way to Macao. She made another attempt to go to Macao on 10 December 1991 because her solicitor thought that the direction was only valid for 3 months. She was, however, stopped from leaving Hong Kong and her solicitor later received a copy of the Direction from the Commissioner. The taxpayer said that she often visited Macao and China for pleasure.

11. On 23rd January 1992, the writ of summons was issued by the Commissioner in his action claiming against the taxpayer the sum of $229,845. The writ was served on 28th February 1992. Defence was filed on 29th April 1992. The summons to strike out was issued on 3rd September 1992 and the summons to discharge the direction was issued on 22nd September 1992.

12. In September 1992, the Commissioner prepared an Asset Better Statement and assessed the assessable profit of the son in the 4 years before his death to be $2.8 million. The taxpayer was asked to comment on the assessment. Mr. Kwok, Counsel for the Commissioner, informed me that if the taxpayer fails to respond, a determination by the Commissioner on the objection would soon be made.

Section 75 of the Ordinance

Article 10 of the Bills of Rights

5. Actile 10 of the Bills of Rights provides, inter alia, that :

"All persons shall be equal before the Courts and tribunals. In the determination of any criminal charge against him, or of his rights and obligations in a suit at law, everyone shall be entitled to a fair and public hearing by a competent, independent and impartial tribunal established by law ... "

6. Article 10 is modelled on Article 14 of the International Covenant on Civil and Political Rights ("the Convenant"). Similar Provision is contained in Article 6(1) of the European Convention on Human Rights ("the Convention").

7. Article 6(1) of the Convention is in the following terms :

"In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and an impartial tribunal established by law ...".

8. Although the wording of the Articles under the Covenant and Convention is different, the meaning of the terms "rights and obligations in a suit at law" and "civil rights and obligations" is the same. As observed by P. Van Dijk and G.J.H. Van Hoof in their work entitled Theory and Practice of the European Convention on Human Rights, the drafters of the Convention at the very last moment made an alteration in the English text. The phrase "rights and obligations in a suit at law" was changed into "civil rights and obligations". This appeared to have been done solely because the alteration was considered to be a better English equivalent of the French text "droits et obligations de caractere civil". A change in meaning was not intended and the French text was left unamended.

9. We are not concerned here with a criminal charge. The issue is whether the taxpayer is faced with a determination of her rights and obligations in a suit at law.

10. The term "civil rights and obligations" has been extensively interpreted by the European Commission of Human Rights ("the European Commission") and the European Court of Human Rights ("the European Court"). A summary of their interpretation is set out at paragraph 1674, Volume 18 of Halsbury's Laws of England, 4th Edition, as follows :

"For the purpose of the requirement of a fair hearing in the determination of civil rights and obligations, the term "civil rights" is a concept which is interpreted independently of the classification of rights within the relevant domestic law. The right must be one which is derived from private law as opposed to public law; thus it does not apply in respect of administrative matters such as proceedings of a fiscal nature. However, it is not necessary that both parties to the litigation should be private persons. The requirement of a fair and public trial only applies to proceedings before the courts of law; it does not apply to an application for a rehearing of a civil case."

11. It is to be noted that Article 6(1) of the Convention does not apply to administrative matters such as proceedings of a fiscal nature. In A, B. C and D v. Netherlands, Applications No. 1904/63, 2029/63, 2094/93 and 2217/64 (Decision of 23rd May 1966, Collection of Decisions, September 1966), the European Commission had this to say :

"Whereas all the proceedings complained of concerned the imposition of a tax or the execution of decisions by which a tax had been imposed; whereas, in a previous case (Application No. 2145/64, X against Belgium, Collection of Decisions, Vol. 18, page 1) the Commission has already found that Article 6, paragraph (1) was not applicable to certain proceedings regarding taxation; whereas the Commission stated in this previous decision that these proceedings concerned a matter falling under public law and not under private law, although the fiscal measure complained of had had repercussions on the Applicant's property rights".

12. It ruled that the proceedings were inadmissible for determination by the European Court. As a matter of procedure the European Court would only hear cases if they are ruled admissible by the European Commission.

13. In X v. Austria, Application 8903/80, (Decisions and Reports, European Commission of Human Rights, Vol 21 (1981) page 246.), the European Commission again ruled the application inadmissible. They held that,

"The present dispute concerns the right of a trader to obtain tax reimbursements designed to assist exports. Whereas it is true that the fiscal advantages in question have repercussion on the trader's business, they find their basis in specific provisions of public law supporting an economic policy; the free will of the parties plays no role whatever in their distribution and amount. The granting or refusal of such reimbursements will not affect any of the trader's rights to perform his private activity and to enter into contracts with third persons; it will only affect the terms of sale or the finding of new outlets. The Commission therefore concludes that the "rights" affected by the administrative decision complained of were not of a private nature."

14. In X v. France, Application No. 9908/82, (Decisions and Reports, European Commission of Human Rights, Vol. 32 (1983) page 266), the Inland Revenue made income tax assessment based on provisions of the French General Tax Code which stipulated that, in cases of obvious personal expenditure exceeding the declared income, tax will be assessed on the basis of this expenditure, without the taxpayer being able to counter this assessment by alleging that he had drawn on capital or received goods from a third party. The taxpayer relied on Article 6(1) and claimed that the statutory provision was incompatible with the principle of fair trial as there was no opportunity for him so furnish proof of matters which might destroy the foundations of the Revenue's assessment. The European Commission relying on A, B, C & D v. Netherland and X v. Austria ruled the complaint inadmissible.

15. The European Commission further found that the applicant had brought no evidence to show that the statutory provision was applied to him differently, and in particular more unfavorably, than to any other taxpayer in a similar situation. It ruled that there was no discrimination within Article 14, namely, the equality provision of the Convention.

16. An example where the right involved was a civil right can be found in the case of Skarby v. Sweden, (1990) 13 E.H.R.R. 93 where the land owners' application for permission to build on part of their property which had been designated as a nature park was refused by the Building Committee. The decision could not be appealed against. The European Court held that Article 6(1) was breached. It held that the right to choose the site of a new building was a civil right within Article 6(1).

17. Another example of civil right is Albert & Le Compte v. Belgium, (1983) 5 E.H.R.R. 533, where 2 medical doctors were suspended from practicing medicine. The European Court held that,

"It is sufficient to note that it is by means of private relationships with their clients and patients that doctors in private practice, such as the applicants, avail themselves of the right to continue to practice; in Belgium, these relationships are usually contractual and in any event are directly established between individuals on a personal basis. Accordingly, the right to continue to practice constituted, in the case of the applicants, a private right and thus a civil right within the meaning of Article 6(1) notwithstanding the specific character of the medical profession - a profession which is exercised in the general interest - and the special duties incumbent on its members."

18. The Human Rights Committee ("the Committee") of the United Nations in Communication No. 112/1981 (Vol. 2, Selected Decisions of the Human Rights Committee under the Optional Protocol) dealing with Article 14 of the Covenant stated that,

"... the concept of a "suit at law" or its equivalent in the other language texts is based on the nature of the right in question rather than on the status of one of the parties (governmental, parastatal or autonomous statutory entities), or else on the particular forum in which individual legal systems may provide that the right in question is to be adjudicated upon, especially in common law systems when there is no inherent difference between public law and private law, and where the Courts normally exercise control over the proceedings, either at first instance or on appeal specifically provided by statute or else by way of judicial review. In this regard, each communication must be examined in the light of its particular features."

19. In that application, a former soldier of the Canadian Army had applied for pension which was rejected by the relevant pension boards and review boards. The Committee ruled that the application was inadmissible and Article 14 was not in breach since the various bodies which determined the pension application was subject to judicial supervision and control and judicial review was available in unsuccessful claims.

20. Turning to the present case, the assessment of tax by the Commissioner is an administrative act made pursuant to the provision of the Ordinance. As the European Commission observed in Kaplan v. The United Kingdom (Application No. 7598/76, (1981) 21 Decisions and Reports page 5)

"... the essential role of Article 6(1) in this sphere is to lay down guarantees concerning the mode in which claims or disputes concerning legal rights and obligations (of a "civil" character) are to be resolved. A distinction must be drawn between the acts of a body which is engaged in the resolution of such a claim or dispute and the acts of an administrative or other body purporting merely to excercise or apply a legal power vested in it and not to resolve a legal claim or dispute. Article 6(1) would not ... apply to the acts of the latter even if they do affect "civil rights". It would not be considered as being engaged in a process of "determination" of civil rights and obligations. Its function would not be to decide ("decidera") on a claim, dispute or "contestation". Its acts may, on the other hand, give rise to a claim, dispute or "contestation" and Article 6 may come into play in that way."

21. Even if the administrative act is not subject to Article 6(1), the European Courts have interpreted Article 6(1) as requiring the administrative act to be subject to control by a body that has full jurisdiction to deal with the merits of matter and in conformity with the Article. This view is gathered, for example, from Albert and Le Compte (supra), where the European Court at page 542 held that,

"Nonetheless, in such circumstances the Convention calls at least for one of the two following systems: either the jurisdictional organs themselves comply with the requirements of Article 6(1) or they do not so comply but are subject to subsequent control by a judicial body that has full jurisdiction and does provide the guarantees of Article 6(1)"

22. In this connection, a taxpayer who is dissatisfied with the assessment of the Commissioner has avenues opened to him in order to challenge the assessment under the Ordinance. Under Section 64(1) an objection may be lodged within 1 month of the assessment. The Commissioner is then required to determine the objection under Section 64(2). In determining the objection, the Commissioner has the power to call and hear evidence. A taxpayer who is dissatisfied with the determination of the Commissioner on the objection has the right of appeal to the Board of Review pursuant to Section 66 or alternatively to the High Court under Section 67. The proceedings of the Board of Review is set out in Section 68. The Board of Review will hear the case on its merits and it may confirm, reduce, increase or annul the assessment and may remit the case to the Commissioner with its opinion. Although its decision is final, the taxpayer may, under Section 69, require the Board to state a case on a question of law for the High Court and a High Court judge shall hear and determine any question of law arising on the stated case. Section 69A further enables the taxpayer, with the leave of the Court of Appeal, to appeal directly to the Court of Appeal against the decision of the Board of Review.

23. If the decisions of the European Commission and the European Court are to be followed, Article 10 of the Bill of Rights would not be applicable to the present proceedings because the assessment was an administrative act and not a determination of the private right of the taxpayer even though the fiscal measure had repercussion on her property rights. The Board of Review established under the appeal procedures of the Ordinance obviously satisfies the requirement of Article 10.

24. Miss Sze, Counsel for the taxpayer, however, urged me to construe Article 10 without regard to the European decisions. She submitted that since the Bill of Rights, unlike the Covenant and the Convention which apply between individuals as well as between individual and the government, only applies to individual and government (this was decided by the Court of Appeal in Tam Hing Yee v. Wu Tai-Wai [1992] 1 HKLR 185), one should not further restrict its application by excluding from Article 10 administrative decision of the Hong Kong Government on fiscal matters. She further submitted that the legislature did not intend such administrative decisions should be excluded from Article 10. She argued that in the legislature had so intended, it would have expressly so provided in the Bills of Rights. An example of which is Section 11 which provides that, as regards persons not having the right to enter and remain in Hong Kong, the Bill of Rights does not affect any immigration legislation governing entry into, stay in and departure from Hong Kong, or the application of any such legislation.

25. I am not persuaded by Miss Sze's argument. The Bill of Rights is based on an international covenant and various countries have adopted the international covenant either as part of its domestic law or as part of its treaty obligation. Interpretation of the provisions of the covenant should be consistent. While the European decisions are not binding on me, their interpretation should obviously be taken into account in deciding how an identical or similar provision should be interpreted in Hong Kong.

26. I am not persuaded that the exclusion from the Bill of Rights of dispute between individuals and of certain legislation is a sufficient reason for adopting a different interpretation of Article 10. I accept that the term "rights and obligations in a suit at law" in our Article 10 bears the same meaning as "civil rights and obligations" in Article 6(1) of the Convention and the assessment of profit tax does not involve any determination of private right but is rather a matter arising out of an administrative act. This administrative act is subject to a review on its merits by the Board of Review which satisfies the requirement of Article 10.

27. I rule that Article 10 is not applicable to the present proceedings and Sections 75(3) and (4) are not inconsistent with the provision of Article 10 of the Bills of Rights

Article 22

Article 22 provides that,

"All persons are equal before the law and are entitled without any discrimination to the equal protection of the law. In this respect, the law shall prohibit any discrimination and guarantee to all persons equal and effective protection against discrimination on any ground such as race, colour, sex, language, religion, political or other opinion, national or social origin, property, birth or other status."

28. The first sentence of Article 22 is declaratory in nature. Between the Commissioner and the taxpayer, the Commissioner relies on the statutory provisions of Section 75(3) and (4) to preclude the taxpayer from challenging the correctness of the assessment in these proceedings. I do not consider this constitutes any inequality between the litigants. What is more important in my view is that there is no suggestion that Section 75(3) and (4) had been applied to the taxpayer differently or more unfavorably than to any other taxpayer in a similar situation. I rule that the equality provision of Article 22 has not been breached.

29. As the only challenge raised on the application for judgment is the one concerning the Bills of Rights which has not been breached and as the Commissioner has provided a Section 75(3) certificate, I shall order the Defence be struck out and judgment be entered for the Commissioner in the sum of $229,845.00.

Section 77 of the Ordinance

Is the District Court Judge acting in a judicial capacity or merely as a public officer discharging administrative duties ?

30. I will now deal with the application to discharge the Direction made by His Honour Judge Cameron. The Commissioner took a preliminary objection to my jurisdiction to hear arguments on Section 77. It was submitted that the District Judge who issues the direction to prevent a taxpayer from leaving Hong Kong is merely acting as a public officer and not in his judicial capacity. It was submitted that there is no adjudication and no exercise of any discretion by the judge. The argument was advanced, as I understand it, on the basis that if the District Judge is merely acting as a public officer discharging an administrative act, that act would not attract the implication of Article 10.

31. I do not accept the argument that the District Judge in a Section 77 application is merely acting in the capacity of a public officer dealing with an administrative matter and not acting in a judicial capacity. If the argument is correct, there is no need to obtain a direction from the District Court in the first place. The matter can simply be dealt with internally within the Inland Revenue Department. By referring the matter to the District Court, it is clear that the legislature intended the issuance of the direction should be exercised by a judicial officer in his judicial capacity and not merely as a public officer. It is not merely an administrative act but a determination which affects the rights of the taxpayer, namely the right to move freely out of Hong Kong. I therefore rule against the Commissioner on the preliminary point that the act of the District Judge in issuing the direction is merely an administrative act and not subject to the purview of Article 10.

Article 10 : Right to a fair and public hearing.

32. Having conferred on a District Judge the power to make the direction requiring the relevant government body to take steps to prevent the taxpayer from leaving Hong Kong, the judge who exercises that right is, however, not given any discretion at all in the matter. Section 77(1) of the Ordinance is as follows :

"Where the Commissioner is of opinion that any person is about to or likely to leave Hong Kong without paying all tax assessed upon him, he may issue a certificate containing particulars of such tax and the name and last known place of abode, business or employment of such person to a District Judge, who shall on receipt thereof issue a direction to the Commissioner of Police to take such measures including the use of such force as may be necessary to prevent such person from leaving Hong Kong without paying the tax or furnishing security to the satisfaction of the Commissioner for payment thereof."

33. The application for the direction is made ex parte to the District Judge. There is no requirement of an oral hearing of the application. Under the wording of Section 77 the District Judge has to issue the direction based on the opinion of the Commissioner. The Court is provided with no other evidence and has no discretion at all in the matter. The certificate is on a printed form, extremely brief in its content, with the particulars of the tax and that of the taxpayer. There is no requirement that the certificate should contain particulars as to how the Commissioner formed his opinion that the taxpayer is about or is likely to leave Hong Kong. In the present case, while the certificate correctly stated that the tax assessed was $448,945.00, it did not indicate that half of the amount was held over unconditionally. Under Section 21B of the Supreme Court Ordinance the Court has the power to prohibit the debtor of a civil debt from leaving Hong Kong. However, unlike Section 21B, there is no time limit imposed on the direction and there is no provision in Section 77 which enables the Court to discharge the direction either absolutely or on terms.

34. Under Article 10 of the Bills of Rights, everyone shall be entitled to a fair and public hearing. The application for the Direction was certainly not made in a public hearing. The taxpayer was not given any opportunity to present her case or rebut any opposing argument which the principle of fairness demands.

35. Even if the decision of the District Judge is subject to judicial review, this remedy is not sufficient for the purpose of Article 10. The European Court construed the comparable Article 6(1) as requiring a right of appeal on the facts and merits of the original decision and not merely a right to review of its legality. The restricted scope of judicial review which does not go into the merits of the decision would not satisfy the requirement of Article 10. (See Weeks v. United Kingdom 10 E.H.R.R. 293 on Article 5(4) of the Convention).

36. Similarly, any appeal from the District Court to the Court of Appeal would not satisfy the requirement of Article 10 either because the Court of Appeal would not be in a position to go into the merits of the decision if all that the District Judge had done was to issue the direction pursuant to the certificate of the Commissioner. The wording of Section 77(1) precludes the Court from going into the merits of the matter.

37. I am of the firm view that where individuals are deprived of their liberty in the context of freedom of movement, Article 10 is applicable. If Article 10 is applicable where proprietary rights or livelihood is affected, there is all the more reason that it should apply where the liberty of the subjects is involved. Freedom of movement is recognized and guaranteed under Article 8 which provides that everyone shall be free to leave Hong Kong subject to such restrictions as are provided by law or are necessary to protect national security, public order, public health or morals, the rights and freedoms of others and are consistent with the other rights recognized in the Bills of Rights. In order to fully implement the guarantees under Article 8 and as a corollary, to determine whether the restriction in the freedom of movement of a person is justified, a fair and public hearing by a competent, independent and impartial tribunal established by law must be observed. In the present case, the requirement in terms of a fair and public hearing is not fulfilled and I rule that Section 77 is inconsistent with Article 10 of the Sill of Rights. The Direction issued by His Honour Judge Cameron must be discharged.

Articles 8 and 22

38. Having ruled that Section 77 is inconsistent with Article 10, it is not necessary to further express my views on whether the restriction on movement is justified under Article 8 and on the application of Article 22.

39. I shall now hear the parties on costs.

Peter Cheung
District Judge