TAI YU TING v. INLAND REVENUE BOARD OF REVIEW AND ANOTHER

[English Translation – 英譯本]
HCAL 119/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO. 119 OF 2005

---------------------

BETWEEN

----------------------

-------------------------

J U D G M E N T

-------------------------

1. The applicant is seeking judicial review of a decision of the Inland Revenue Board of Review (“Board of Review”) dated 17 June 2005.  By that decision, the Board of Review dismissed the applicant’s application to state a case on a decision given on 2 February 2005 for the opinion of the Court of First Instance.

Factual background

2. The applicant, formerly known as Tai Yu Kan (戴汝勤), was the sole proprietor of a metals trading company.  In late 1995, the Inland Revenue Department (“IRD”) commenced an investigation into the applicant’s tax affairs.  Between March 1996 and March 2003, the IRD assessed the interest proceeds received by the applicant as a result of providing loans to others and also made assessments and additional assessments on the profits of his trading company for the years of assessment 1989/90 to 1994/95.  The applicant objected to these assessments.  On 31 July 2003, the Deputy Commissioner of Inland Revenue made a determination on the assessments for the years 1989/90 to 1994/95 and the objection thereto.

3. Prior to this, the applicant was adjudged bankrupt by the court on 7 February 2002.  In view of this, the IRD issued a salaries tax protective assessment for the year 1995/96 on 27 March 2002, and the total amount of taxable income involved was four million dollars.

4. On 7 February 2002, the applicant signed a letter of authorization, authorizing the Official Receiver to represent him in dealing with his tax affairs.

5. On 14 January 2004, the Official Receiver granted the applicant limited authorization, authorizing him to deal with his tax affairs by negotiating, but not litigating, with the IRD.

6. On 28 March 2004, the applicant lodged an appeal to the Board of Review against the aforesaid assessment determination made by the Deputy Commissioner of Inland Revenue.  Although the appeal was lodged out of time, the IRD took no issue on the limitation period.

7. On 11 May 2004, the Official Receiver wrote to the Board of Review confirming that no authorization had been granted to the applicant to pursue litigation.  In the letter, the Official Receiver also stated clearly that he had no intention to permit the applicant to attend or pursue the appeals.

8. On 9 July 2004, the Official Receiver wrote to the Department of Justice who was representing the IRD, indicating that he did not intend to attend the hearing of the applicant’s tax appeal and that he did not agree to the applicant attending appeal hearings or pursuing appeals on behalf of his estate.  The Official Receiver pointed out in the letter that even if the assessment disputed by the applicant was in the end significantly reduced, the applicant might still not be able to settle his debts or bring any profit to the assets subject to the bankruptcy order to the benefit of his creditors.

9. The appeal was heard before the Board of Review on 9 August 2004.  The Senior Government Counsel appearing for the Commissioner of Inland Revenue asked the Board of Review to make a preliminary ruling on whether the applicant has the locus standi pursue the appeal.  The Board of Review delivered its ruling on 2 February 2005, holding that the applicant, being an undischarged bankrupt, had no locus standi in pursuing an appeal.  At the same time, the Board of Review dismissed the applicant’s tax appeal in light of the Official Receiver’s stance.

10. On 7 February 2005, the applicant applied to the Board of Review to state a case.

11. On 17 June 2005, the Board of Review ruled that the applicant did not have the locus standi to apply to state a case pursuant to section 69 of the Inland Revenue Ordinance (Cap. 112).  In paragraph 5 to 7 of its Decision, the Board of Review said:

5.         Besides, as Madam Ho Ng Wing Yee, representative of the Inland Revenue Department, submitted to the Board, the appropriate procedure to challenge the ruling is to apply for judicial review.  She referred to a recent case Chow Kwong Fai Edward v Inland Revenue Board of Review [2004] 2 HKLRD 651, in which Hartmann J held that economic prudence and expedition dictated that a direct challenge by way of an application for judicial review was more appropriate when the challenge was based on classic judicial review grounds.

6.         The present challenge (settled for the applicant by this Board) is that this Board erred in law in ruling that (i) the taxpayer had no locus standi to pursue this appeal and (ii) this Board had the power to dismiss the appeal [see paragraph 21 of the Ruling].  In accordance with Chow Kwong Fai Edward, these challenges can and should be mounted by way of judicial review on the classic ground of “unlawfulness”.

7.         In the premises, even if this Board wrongly ruled that the taxpayer was not entitled to make an application under Section 69 (see paragraph 4 above), the taxpayer still has the right to apply for judicial review.

Application for judicial review

12. On 12 September 2005, the applicant commenced this action against the decision of the Board of Review.

13. On 21 October 2005, I granted leave to apply for judicial review and directed that the Commissioner of Inland Revenue be joined as the 2^nd Respondent.

14. On 25 October 2005, the applicant filed the “Notice of Originating Motion”.

15. In line with its long-standing practice, the Board of Review was not represented or present at the hearing.

16. The relief sought by the applicant in his Notice of Application for leave to apply for Judicial Review [Form 86A] and the Notice of Originating Motion was to have the case remitted to the Board of Review for rehearing, with the tax assessment for the year 1995/96 to be included as one of the matters for rehearing.

Issues in this application 

17. Two issues are involved in this application.  They are:

(1)     Prior to the discharge of his bankruptcy order, whether the applicant had locus standi to file a tax appeal to the Board of Review and to apply for a case stated; and

(2)     If the applicant did not have locus standi to lodge a tax appeal, whether the Board of Review had the power to dismiss the applicant’s appeal and refuse to state a case for the opinion of the Court of First Instance.

Locus standi in pursuing tax appeal

18. As to whether the applicant had locus standi to pursue a tax appeal, the legal issue involved is whether a bankrupt can, prior to the discharge of the bankruptcy order against him, bring an appeal or proceed with legal proceedings in relation to his tax matters.

19. Sections 12(1), 58(1) & (2) and 61(b) of the Bankruptcy Ordinance (Cap. 6) provide as follows:

12. Effect of bankruptcy order

(1)      On the making of a bankruptcy order the Official Receiver shall be thereby constituted receiver of the property of the bankrupt, and thereafter, except as directed by this Ordinance, no creditor to whom the bankrupt is indebted in respect of any debt provable in bankruptcy shall have any remedy against the property or person of the bankrupt in respect of the debt, nor shall proceed with or commence any action or other legal proceedings, unless with the leave of the court and on such terms as the court may impose.

…

58. Vesting and transfer of property

(1)      Until a trustee is appointed the Official Receiver shall be the trustee for the purposes of this Ordinance, and immediately on a debtor being adjudged bankrupt the property of the bankrupt shall vest in the trustee.

(2)      On the appointment of a trustee the property shall forthwith pass to and vest in the trustee appointed.

…

61. Powers exercisable by trustee with permission of creditors’ committee

The trustee may, with the permission of the creditors’ committee, do all or any of the following things ―

(a)      …

(b)      bring, institute or defend any action or other legal proceeding relating to the property of the bankrupt; …

20. In Koh Kee Suan v. Ip Kay Lo [2001] 3 HKLRD 439, the Court of Appeal unanimously held that, by virtue of the Bankruptcy Ordinance, all the property and liability of the bankrupt are to be taken over by the Official Receiver.  Therefore, the bankrupt ceases to have any interest in his assets or liabilities, and hence he is not entitled to appeal against an order made against his estate (at 441).  In other words, since the right of appeal is vested in the bankrupt’s estate, only the Official Receiver is entitled to exercise it.

21. In another appeal case Chung Kau v. Hong Kong Housing Authority [2004] 2 HKLRD 650, 654, paragraphs 7-8, the Court of Appeal reiterated that the bankrupt’s estate is taken over by the Official Receiver, and therefore, if a right to litigate is part of the bankrupt’s estate, then the Official Receiver is entitled to decide whether or not to bring or proceed with any litigation.  The Court of Appeal also pointed out that, if a right to litigate is personal to the bankrupt, then the bankrupt is still entitled to commence litigation.  “Personal” means being connected to the bankrupt’s person, mind or character but not directly involving his property rights.

22. It is beyond doubt that disputes over liability to pay tax and tax assessment are closely related to the property of the taxpayer concerned.  In this case, as is made clear by the aforesaid express statutory provisions and case law, a bankrupt’s right to litigate in relation to his tax affairs is vested in his estate.  The Official Receiver is fully entitled to decide whether, and if so how, to exercise that right.  The right to litigate includes the pursuit of a tax appeal.  Therefore, it is for the Official Receiver to decide whether to bring or proceed with a tax appeal.

23. For the above reason, in the absence of consent and authority of the Official Receiver, a bankrupt does not have locus standi to bring or proceed on his own with an appeal against his tax assessment.  In the present case, it was beyond dispute that the applicant was not authorized by the Official Receiver to pursue tax appeals or any other legal proceedings.  The Official Receiver had clearly indicated that he did not consent to the applicant pursuing the tax appeal and attending the hearing.  In the circumstances, the applicant had no right to bring the tax appeal or proceed with the hearing.  The Board of Review correctly ruled that he had no locus standi to appeal to the Board.

Locus standi to apply for case stated

24. Section 69 of the Inland Revenue Ordinance provides that the appellant of a tax appeal or the Commissioner of Inland Revenue may make an application requiring the Board of Review to state a case on a question of law for the opinion of the Court of First Instance.

25. Since the applicant had no locus standi to bring or pursue any legal proceedings and the “case stated” procedure under Section 69 is a legal proceeding, the applicant could not make such an application to the Board of Review without the consent and authorisation of the Official Receiver.

26. The Board of Review was also correct in ruling that the applicant had no locus standi to apply to state a case.

The power of the Board of Review to dismiss the appeal

27. Under Section 68(2B)(c) of the Inland Revenue Ordinance, the Board of Review is expressly empowered to dismiss an appeal brought under Section 66 if the appellant fails to attend the appeal hearing before the Board either in person or by his authorized representative.

28. The issue in this application is: in dealing with a tax appeal, is the Board of Review legally entitled to dismiss the appeal on the ground that the appellant does not have locus standi to pursue the appeal?

29. Section 40(1) of the Interpretation and General Clauses Ordinance (Cap. 1) provides as follows:

Where any Ordinance confers upon any person power to do or enforce the doing of any act or thing, all such powers shall be deemed to be also conferred as are reasonably necessary to enable the person to do or enforce the doing of the act or thing.

30. According to Section 3 of the Ordinance, the term “person” in Section 40(1) shall be interpreted as:

 [including] any public body and any body of persons, corporate or unincorporate, and this definition shall apply notwithstanding that the word “person” occurs in a provision creating or relating to an offence or for the recovery of any fine or compensation.

31. Where the law confers upon an individual or body a power to deal with an appeal, that individual or body should also have the power to dismiss the appeal.  This power is both reasonable and necessary for the effective exercise of the power to deal with appeals.

32. By this analysis, the Board of Review, having been empowered by the Inland Revenue Ordinance to deal with and hear tax appeals, should also have the power to dismiss the appeals by virtue of Section 40(1) of the Interpretation and General Clauses Ordinance without the need for any express provision to that effect.

33. Furthermore, at common law, the Board of Review also has the power to dismiss an appeal.  In The Attorney-General & Ephraim Hutchings (Relator) v. Great Eastern Railway Company (1880) 5 App. Cas. 473, 478, the Lord Chancellor held that it is important for the doctrine of ultra vires to be reasonably understood and applied, and that anything which may fairly be regarded as incidental to or consequential upon the powers conferred by the legislature, should not be held to be ultra vires unless expressly prohibited.

I assume that your Lordships will not now recede from anything that was determined in The Ashbury Railway Company v. Riche (1);  It appears to me to be important that the doctrine of ultra vires, as it was explained in that case, should be maintained.  But I agree with Lord Justice James that this doctrine ought to be reasonably, and not unreasonably, understood and applied, and that whatever may fairly be regarded as incidental to, or consequential upon, those things which the Legislature has authorized, ought not (unless expressly prohibited) to be held, by judicial construction, to be ultra vires.  …

34. Therefore, a statutory power should be construed as impliedly authorizing any act which may fairly be regarded as incidental to or consequential upon the power itself: see Wade & Forsyth, Administrative Law (2004, 9^th edition), pages 213-214.

35. In light of the above legal principle, once the Board of Review ruled that the applicant did not have locus standi to bring a tax appeal so that his appeal was not lawfully brought, the Board was entitled to dismiss the appeal.

Power of the Board of Review to dismiss the application for case stated

36. Similarly, the Board of Review was also legally entitled to dismiss the applicant’s application to state a case.

Other matters

37. The above analysis has thoroughly covered the issues involved in this application for judicial review.  However, in view of the applicant’s submissions, I think I should in passing clarify and enunciate some basic facts and ideas.

38. The applicant repeatedly mentioned in his submission that the salaries tax assessment for the year 1995/1996 indicated that he had a taxable income of 4 million dollars.  The applicant also claimed that the IRD had withdrawn hundreds of thousands of dollars from his bank account.  He contended that the assessment was wrong and that it was improper to withdraw his savings.  He submitted that the IRD, being an administrative authority, had refused to “settle the account” with him after making wrong decisions against him, and had frustrated his appeal the Board of Review and his request to “settle the account”on the ground that he lacked locus standi.  He commented that the IRD had, by oppressive and high-handed means, deprived him of the rights and entitlements of an ordinary citizen, and this was injustice at its worst.  He also criticized the Official Receiver for merely caring about the effect on the general body of creditors and disregarding his personal feelings and rights.

39. As a matter of fact, the salaries tax assessment for the year 1995/96 was issued to the applicant on 27 March 2002.  At that time, the applicant had just been adjudged bankrupt, and the assessment made by the IRD was a protective assessment, the purpose of which was to enable a proof of debt to be made to the Official Receiver’s Office.   The amount of tax was assessed at $600,000.  Besides, as the applicant was bankrupt, his assets and liabilities had been taken over by the Official Receiver, and therefore the IRD did not directly demand the applicant to pay the assessed tax for the year 1995/96.  Furthermore, since the Official Receiver did not raise any objection to the assessment, the assessment was regarded as final and conclusive pursuant to Section 70 of the Inland Revenue Ordinance upon expiry of the statutory time limit for raising an objection.  More importantly, the tax appeal that the applicant lodged with the Board of Review on 28 March 2004 was only against the determination made by the Deputy Commissioner of Inland Revenue on 31 July 2003 regarding the assessments for the years 1989/90 to 1994/95.  In other words, the protective assessment for the year 1995/96 was neither included in the applicant’s tax appeal nor in the assessments involved in this application.  This was clearly referred to in the letters issued by the IRD to the applicant and the Decision of the Board of Review.  Under such circumstances, even if the Court granted the application for judicial review, the Court could not ask the Board of Review to deal with the appeal against the assessment for the year 1995/96.

40. In response to the allegation of the applicant that the IRD had withdrawn from his savings hundreds of thousands of dollars, Mr. Lee Siu Keung, on behalf of the Commissioner of Inland Revenue, stated in his affidavit that the IRD had issued additional assessment and protective assessment to the applicant and his company when investigation on the applicant was underway.  Apart from income tax, the IRD had once granted a holdover.  The terms of holding over were then amended because the applicant did not pay tax in time and only provided limited information.  Subsequently, pursuant to the determination of the Deputy Commissioner of Inland Revenue on 31 July 2003, the IRD made a revised assessment and returned to the applicant part of the money (i.e. $72,091) received from him.  The IRD had in fact only received tax payment of $286,872.

41. Regarding the rights to appeal and “to settle account” that the applicant insisted upon, they had, in fact, all along been in existence and recognized.  The crux of the matter is that under the Inland Revenue Ordinance, these rights, which are normally exercisable by taxpayers, were transferred to the Official Receiver by operation of law after the applicant was adjudged bankrupt, and the Official Receiver was fully entitled to decide whether and how to exercise them.  These rights had not been forfeited or undermined by reason of the bankruptcy of the applicant.  The difference is that it was not for the applicant to decide and direct how to have the rights exercised.

42. Turning to the decisions made by the Official Receiver, the undisputable legal principle is that the Official Receiver, being the trustee of the bankrupt’s estate, has to have regard to the interest of the general body of creditors.  The wishes and feelings of the bankrupt cannot override the benefits of the creditors as a whole.  As far as the applicant’s case is concerned, it is beyond dispute that, leaving aside his tax liability, he was insolvent.  Therefore, as the Official Receiver pointed out in his letter to the Board of Review, even if the tax assessment on the applicant were significantly reduced, the general body of creditors would not receive any benefit.  It was therefore natural for the Official Receiver to decide not to waste public fund by lodging a tax appeal or raising an objection to the assessment for the year 1995/96.

43. In addition, the applicant’s locus standi is governed by legislation and legal principles which the IRD, the Official Receiver’s Office, the Board of Review and this Court must abide by and act upon.  Therefore, it cannot be said that the IRD had been oppressive upon the applicant or that the Official Receiver’s Office had sacrificed the applicant’s interests.

44. Finally, I have to point out that the bankruptcy order against the applicant was automatically discharged on 7 February 2006 by virtue of the Bankruptcy Ordinance.  As a consequence, all the tax assessments against him, including the assessment for the year 1995/96, have been vacated.  It follows that the questions of whether he had locus standi to lodge the tax appeal and whether the Board of Review should dismiss his appeal and refuse his application for case stated are rendered academic.

45. There is no need to look further than the public law doctrine “the law does not act in futility” to justify a refusal to grant any relief to the applicant.

Conclusion

46. Based on the above analysis and reasons, I dismiss the application.

47. The usual rule is that costs should follow event.  In the present case, having regard to the contents of paragraphs 5 and 6 of the Decision of the Board of Review on 17 June 2005, and the fact that this judicial review application is solely concerned with two points of law and that the applicant has just been discharged from bankruptcy, I consider that I may exercise my discretion and depart from the usual rule.  Therefore, I make an order nisi that there is no order as to costs,which will become absolute if none of the parties apply to vary it within 14 days from the handing down of this judgment.