DR. THE HONOURABLE LEUNG KA-LAU v. THE COMMISSIONER OF INLAND REVENUE

FACV NO. 5 OF 2023

[2023] HKCFA 41

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 5 OF 2023 (CIVIL)

(ON APPEAL FROM CACV NO. 278 OF 2021)

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JUDGMENT ON COSTS

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Mr Justice Ribeiro PJ:

1.  The issue in this case was whether a sum of HK$1,765,821 paid as damages by the Hospital Authority to the taxpayer, a doctor in its employ, for standing by for work on rest days, statutory and public holidays, was taxable as salaries tax. The original assessments that the sum was so taxable were overturned at first instance and in the Court of Appeal but the Court allowed the Commissioner’s appeal.

2.  Applying Fuchs v Commissioner of Inland Revenue,[1] it was held that the amount was taxable under section 8 of the Inland Revenue Ordinance[2] since it was paid to the taxpayer for acting as or being an employee; was payment for past services; and was paid as an inducement to prospective employees to enter into a contract of employment with the Hospital Authority.

3.  The Court made an order nisi that the costs here and below should be paid by the taxpayer to the CIR, granting the parties liberty to lodge written submissions on costs. Having considered those submissions, this is the judgment of the Court on costs.

4.  The taxpayer invites the Court to direct that there be no order as to costs in the Courts below and that the costs of and occasioned by the appeal to this Court be reduced by two thirds to be taxed, if not agreed, with certificate for one counsel (the Commissioner having been represented by leading and junior counsel).

5.  The taxpayer submits that the proposed orders should be made because he had only adopted a “passive position” in the Court of Appeal and in this Court “because [he] was being appealed by the [Commissioner]”. That submission is difficult to understand. The taxpayer was pursuing his objection to the tax throughout. As respondent, he was resisting the Commissioner’s appeal. Since the Commissioner succeeded in this Court in overturning the earlier decisions on the sole question in issue, there is no basis for departing from the usual rule that the costs should follow the event.

6.  The taxpayer cites this Court’s judgment in Sham Tsz Kit v Secretary for Justice,[3] where it was ordered that there be no order as to costs in respect of the proceedings in the Court of First Instance and the Court of Appeal and that the respondent should only pay the costs of the appeal in this Court. As counsel for the Commissioner points out, the circumstances there were entirely different. Two of the three Questions raised by the appellant had been unanimously dismissed in all three Courts and it was only in the course of the hearing in this Court that the basis of the appeal concerning the third Question, which was accepted by a majority, was clarified.

7.  Nor do we accept the submission that there should be a certificate for only one counsel. As the Court has made clear, the normal rule is that, subject to the reasonableness of the fees paid, the Registrar will allow the costs incurred by a party who has employed two counsel in this Court, so that it is unnecessary to ask for a certificate for two counsel since such costs would be recoverable even without such a certificate.[4] There is no reason to depart from that practice in the present case.

8.  Accordingly, we direct that the order nisi that the costs here and below be paid by the taxpayer to the Commissioner, do stand as an order absolute.