COMMISSIONER OF INLAND REVENUE v. POON CHO-MING, JOHN

FACV No. 1 of 2019

[2020] HKCFA 2

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO.1 OF 2019 (CIVIL)

(ON APPEAL FROM CACV NO. 94 OF 2016)

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JUDGMENT ON COSTS

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Mr Justice Bokhary NPJ:

1.  We have before us somewhat novel circumstances in which a party seeks an exercise in his favour of the discretion to award costs on a basis of taxation more generous than the usual party and party basis. At the invitation of the president of the panel, I give the Court’s judgment on costs.

2.  On 17 October 2019 we heard, and on 14^th of the following month we handed down, our judgment dismissing the appeal by the Commissioner of Inland Revenue (“the Commissioner”) against the Court of Appeal’s judgment which reversed the Court of First Instance’s judgment which had affirmed the Board of Review’s decision in the Commissioner’s favour. By the judgment which we handed down, we made an order nisi awarding costs, to be taxed if not agreed, here and below, to the respondent taxpayer Mr John Poon (“the Taxpayer”). The Taxpayer asks us to vary that order by ordering that the costs of and incidental to the appeal to us (including the costs of the application for leave to bring that appeal) be taxed on an indemnity basis or, alternatively, on a common fund basis rather than on the usual party and party basis. Such variation would, the Taxpayer contends, achieve a fairer result. The Commissioner opposes any variation of the order nisi.

3.  As is usual, the issue as to costs is being dealt with on the parties’ written submissions, for which we thank them.

Correct approach to the exercise of the discretion

4.  With particular reference to indemnity costs but relevantly also to common fund costs, the following propositions emerge from this Court’s judgment in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at paras 14-18:-

(a)   In certain circumstances, costs may be awarded on a more generous than usual basis of taxation so as to achieve a fairer result.

(b)   It is for the receiving party to show that the case has some special or unusual feature. 

(c)   Such features are not confined to an ulterior motive, an improper purpose, deception or underhand conduct on the part of the paying party.

(d)   Neither the attributes of the parties nor the character of the proceedings are irrelevant to the question of whether a more generous than usual basis of taxation should be ordered.

(e) The discretion to order a more generous than usual basis of taxation is not to be fettered or circumscribed beyond the requirement that such taxation be ordered only when it is appropriate to do so.

(f) As to that, the grounds on which a more generous than usual basis of taxation is to be ordered must be connected with the case.  That extends to - but no further than to - any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation.

5.  As to why we were of the view that the discretion to award indemnity costs was rightly exercised in the respondent Society’s favour at trial and ought also to be so exercised in the “leap-frog” appeal directly to us, this was said (at para 19):

“The fact that proceedings are commenced to vindicate the public interest, more particularly to protect a public asset which is a central element in Hong Kong’s heritage, rather than to assert or enforce some private right or interest, is plainly relevant to the exercise of the discretion. Also relevant is the fact that, but for the commencement of the proceedings by the Society, the public interest in securing compliance with the law would not have prevailed and resulted in the resolution of fundamental legal issues. Likewise relevant are the manifest public importance of the case (the protection of the Harbour) and the Society’s limited finances dependent as they are on public donations.”

6.  A recent judgment of this Court on whether indemnity costs ought to be awarded is the judgment on relief and costs handed down on 6 September 2019 in Leung Chun Kwong v Secretary for the Civil Service [2019] HKCFA 34. The reasons which the successful appellant put forward as to why indemnity costs in his favour would be appropriate are set out in para 14 of that judgment. They were that the proceedings involved the public interest; that the conduct of the respondents was unreasonable; that their cases were wholly unmeritorious; and that he will be out of pocket because of the substantial contribution which he was required to make in order to obtain legal aid for the proceedings. In declining to award that appellant indemnity costs and awarding him costs to be taxed on the usual basis, this Court said as follows (at para 15):

“Whilst we have some sympathy for the appellant because of the extent to which he will be out of pocket despite winning this litigation, we are satisfied that this is not an appropriate case for indemnity taxation of the appellant’s costs. We do not consider the behaviour of the respondents in making the challenged decisions and thereafter in contesting the judicial review proceedings, then pursuing the appeal to the Court of Appeal and thereafter resisting the appeal to this Court was so unreasonable and without merit as to be deserving of a costs sanction usually reserved for those cases in which there has been something improper or inappropriate or wholly unreasonable in the administrative decisions under challenge or in the conduct of the proceedings.”

7.  As to the correct approach to the exercise of the discretion to award costs on a more generous than usual basis, the foregoing points are worth stressing. But there is little, if anything, more that it would be helpful to add. The law must always, even where a discretion is concerned, have a reasonable measure of predictability and consistency. But it is necessary to steer clear of anything that might compromise the discretionary nature of a discretion. That said as to the law, we turn now to the facts.

8.  To the extent of about $7,400,250, the Taxpayer objected to a 2008/09 assessment to salaries tax. On 1 February 2010 he paid tax under that assessment save to the extent of $3,650,832 held over under a tax reserve certificate (carrying interest at 0.0433% per annum) which the Commissioner allowed him to purchase and which he purchased on that date. No interest will be paid to the Taxpayer on any refund exceeding the amount of the tax reserve certificate.

The rival submissions

9.  The Taxpayer’s submissions are to the following effect:-

(a)   The Commissioner (i) failed to apply the law correctly to the unchallenged primary facts in his initial determination; (ii) ignored or dismissed without any basis the facts put to him by the Taxpayer and his employer prior to that determination which facts pointed clearly to the purpose and nature of the sums in question; and (iii) did so without challenging the veracity or consistency of the statements and evidence of the Taxpayer, his employer or his solicitor, which the Board of Review accepted as truthful and which pointed clearly to the purpose asserted by the Taxpayer.

(b)   There was no dispute that the principles in Fuchs v Commissioner of Inland Revenue (2011) 14 HKCFAR 74 applied, but the Commissioner persuaded the Board of Review and the Court of First Instance to apply those principles improperly.

(c)   Even with the refund of tax overpaid in 2010, with interest on the tax reserve certificate (at a very low rate and only covering part of the overpayment of tax), and even if the costs of the appeal to this Court were taxed on an indemnity basis after taxation on a party and party basis below, the Taxpayer will still have incurred, on a net basis, a significant amount of irrecoverable costs and expense in seeking to protect his legal rights against the government with all its overwhelmingly superior resources.

(d)   In addition, the Taxpayer has suffered inconvenience, anxiety and adverse publicity and has expended a huge amount of time in relation to the proceedings before the Board of Review, the Court of First Instance, the Court of Appeal and finally us for a period of more than seven years.

(e)   Following the patently correct application of the Fuchs principles by the Court of Appeal, the Commissioner chose to seek to appeal to this Court by contending that those principles required to be reconsidered and revised, so contending without identifying any aspect of the test in Fuchs’s case which needed a further ruling or any modification, addition or variation.

(f)    In this Court, the Commissioner tried unreasonably to persuade us to revisit plainly found facts and accept his view as to the purpose of the payments and benefits, whilst “dressing up” this attempt “in the guise of” important questions of law postulating facts which bore no fair relation to the findings of primary fact in relation to the Taxpayer’s case and which involved presenting arguments incapable of prevailing.

(g)   The Commissioner’s appeal to this Court was patently unmeritorious and unreasonable, putting a further unfair burden on the Taxpayer.

(h) In the circumstances, awarding the Taxpayer indemnity or, alternatively, common fund, costs of and incidental to the appeal to this Court would achieve a fairer result having regard to (i) principally and in particular to the Commissioner’s unreasonable pursuit of a patently unmeritorious appeal; but also, incidentally, to (ii) the fact that the Taxpayer has been wrongly deprived of the use of his money without the hope of any fair and reasonable recompense; (iii) the huge disparity of resources between the government and the individual taxpayer; (iv) the inconvenience, anxiety, adverse publicity and distress suffered by the Taxpayer; and (v) the amount of time and effort required of him in proceedings before the Board of Review, the Court of First Instance, the Court of Appeal and finally us.

10.  By his written submissions, the Commissioner (i) stresses that he prevailed before the Board of Review and the Court of First Instance and that he was granted leave to appeal by the Court of Appeal; (ii) refutes the suggestion that he had not pursued the point on which he was granted such leave; (iii) says that his case was based on facts found by the Board of Review and that it was not unreasonable of him to support those findings and advance the arguments which he did on the basis of them; and (iv) says that there is nothing special or unusual in the circumstances of this case.

11.  It is not uncommon for strong things to be said in the heat of litigation, and it is not always necessary for a court to deal specifically with each and every such strong statement. But it having been noted that the Taxpayer accuses the Commissioner of “dressing up” his points on the facts “in the guise of” important questions of law, it ought in fairness to be made clear that we did not say in our main judgment - and do not say now in this judgment on costs - that the Commissioner had dressed anything up in the guise of anything else.

Analysis of the circumstances of the present case

12.  How then does the matter stand upon an analysis of the circumstances of the present case?

(a) To a greater or lesser extent, litigation not infrequently causes litigants anxiety, distress and annoyance in one form or another, and tends to make demands on them in terms of their time, effort and finances.  In that respect, the Taxpayer deserves the sympathy generally due to litigants.  That in itself is not special to him.

(b) He faced an opponent with resources far exceeding his own. But then so do many other litigants.

(c) The Society which was awarded indemnity costs in the Harbour Protection Case litigated to vindicate a public interest.  Unlike that litigant, the Taxpayer litigated in pursuit of his own interest.

(d) However, like Mr Leung (the judicial review applicant who was the successful appellant in Leung Chun Kwong v Secretary for the Civil Service),the Taxpayer deserves sympathy for being left out of pocket despite winning his case. But sympathy did not result in an award to Mr Leung of costs on a more generous than usual basis of taxation.

(e) The Secretary for the Civil Service’s conduct in that case was, as we have seen, not considered to be so unreasonable and without merit as to warrant the sanction of such taxation against him.  Nor can the Commissioner’s conduct in the present case be so considered.

(f) Sad and true it is that the Taxpayer has been kept out of his money for a long time. But that has not been shown to be due to any dilatoriness on the part of the Commissioner.

Result

13.  In the result, the order nisi is not varied, and therefore becomes absolute. What remains is the costs of the submissions on costs. All things weighed and balanced, we think that the course which would best serve the overall interests of justice is to leave each side to bear its own costs of those submissions, and that is therefore what we do.