RE LEE YEE SHING JACKY AND ANOTHER

HCAL 40/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTITUTIONAL AND ADMINISTRATIVE LAW LIST

NO 40 OF 2008

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J U D G M E N T

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1.  This is an application for leave to apply for judicial review.

2.  The applicants are husband and wife.  They both had incomes attracting salaries tax.  They argued that the husband’s losses on dealings in securities and futures had been incurred in the carrying on by him of a trade or business and ought therefore to be deducted when computing their total income, they having jointly elected for personal assessment.  The Commissioner of Inland Revenue, the putative respondent in the present application, disagreed and the personal assessments on the applicants for the years of assessment 1993/94 to 1997/98 were therefore computed without taking into account those losses.  The applicants appealed to the Board of Review against the assessments, contending that the husband’s dealings in securities and futures did amount to the carrying on of a trade or business.  The Board dismissed their appeal on 6 December 2004.

3.  Pursuant to s 69 of the Inland Revenue Ordinance (Cap 112), the applicants brought an appeal by way of case stated from the decision of the Board to the Court of First Instance.  Initially, there were some disagreements between the applicants and the Commissioner regarding the contents of the case to be stated, but eventually the draft case was finalised by the Board and the applicants no longer expressed any disagreement with it.  As was required by s 69, the appeal to the Court of First Instance was restricted to questions of law only.

4.  By a judgment handed down on 29 March 2006, Burrell J, who heard the appeal, dismissed the applicants’ appeal: [2006] 2 HKLRD 263.  The appeal from the judge’s decision was dismissed by the Court of Appeal on 14 February 2007: [2007] 2 HKC 256.  On 31 January 2008, the applicants’ appeal to the Court of Final Appeal was dismissed: [2008] 3 HKLRD 51.

5.  On 30 April 2008, the applicants took out the present application for leave to apply for judicial review.  The intended challenge is directed against the case stated procedure laid down in s 69 of the Inland Revenue Ordinance, which restricts an appeal from a decision of the Board of Review to the Court of First Instance to questions of law by way of case stated.  The applicants contend, essentially, that this restrictive right of appeal infringes their right of access to court guaranteed by art 35 of the Basic Law.  The applicants therefore seek declarations that s 69 is unconstitutional and that in fulfilment of the constitutional guarantee contained in art 35, an appeal as to both law and fact shall lie as of right to the High Court in favour of any taxpayer dissatisfied with any decision or order of the Board, an order of certiorari to quash the case stated by the Board of Review and an order of mandamus to require the Board to refer an appeal from its decision as to both law and fact to the High Court for decision.

6.  The application for leave, made upon notice to the Commissioner, is strenuously opposed by the Commissioner on two preliminary grounds, namely, undue delay and abuse of process.  The Commissioner is content not to argue, at this stage, about the substantive merits of the proposed challenge.  It is useful to add at this juncture that similar points of constitutionality have been raised against s 69 in a tax recovery case before the District Court, and in a judgment handed down by Her Honour Judge Marlene Ng on 3 February 2009 on an application to strike out the taxpayer’s defence, the judge rejected, amongst other things, the relevant arguments: Commissioner of Inland Revenue v Nam Tai Trading Co Ltd, DCTC 4250/2008.  Mr John JE Swaine, appearing for the applicants in the present application, has informed the Court that subject to the obtaining of leave, an appeal will be lodged against the judge’s decision to the Court of Appeal, counsel also having appeared for the defendant in the District Court case as junior counsel.

7.  The Commissioner’s argument is simple.  On delay, Mr Rimsky Yuen SC, Ms Jennifer Tsui with him, for the Commissioner, contends that the subject matter of the applicants’ complaint is the case stated by the Inland Revenue Board.  The case stated procedure was invoked by the applicants in June 2005.  On the applicants’ own case, they ought to have acted ‘promptly’ and ‘in any event within three months’ from the invoking of the case stated procedure: O 53, r 4(1) of the Rules of the High Court (Cap 4A).  S 21K(6) provides, counsel submits, that in case of undue delay in making an application for judicial review, including the making of a leave application (R v Dairy Produce Quota Tribunal for England and Wales, ex parte Caswell [1990] 2 AC 738), leave may be refused.  According to counsel’s argument, there have been over two and a half years delay in the making of an application for leave.

8.  Secondly, the present application also amounts to an abuse of the process of the court, counsel submits.  This is because the applicants could and should have taken out an application for leave to move for judicial review to challenge the s 69 appeal procedure at the same time they lodged the statutory appeal.  This is a recognised procedure: see Hong Kong Civil Procedure 2009, Vol 1, para 53/14/22.  Alternatively, counsel submits, the applicants could have raised the argument, as a separate question of law, in the appeal from the Board to the Court of First Instance.  The requirement of finality in civil litigation does not permit the applicants to have a ‘second bite of the cherry’, counsel concludes.

9.  I will take the two objections in the reverse order.  First, abuse of process.  The underlying public interest is that there should be finality in litigation and that a party should not be twice vexed in the same matter.  This is particularly so under the current emphasis on efficiency and economy in the conduct of litigation, in the interest of the parties and the public as a whole.  Johnson v Gore Wood & Co [2002] 2 AC 1; applied in Harvest Good Development Ltd v Secretary for Justice [2007] 4 HKC 1.

10.  Yet, as Hartmann J, as he then was, recognised in the latter case (at para 102, p 27), there are circumstances in which a party may justifiably refrain from litigating an issue in one set of proceedings and yet raise it in another.

11.  In my view, the crucial facts in the present case are that first, the applicants were not aware of the s 69 point until after the judgment of the Court of Final Appeal.  This has been confirmed in the 3^rd affirmation of the 1^st-named applicant filed on 18 March 2009 pursuant to an undertaking given at the hearing.  The latest evidence is to the effect that the possible challenge against the constitutionality of s 69 only occurred to the applicants’ counsel after reading the judgment of the Court of Final Appeal.  I should add that counsel was the first person in the applicants’ legal and tax teams to realise this point.

12.  I have no difficulty in accepting the evidence filed.  Unlike the point about adverse possession in Harvest Good, a point which had already been litigated in the domestic courts in England and had gone on to be argued in Strasbourg, which ought therefore to have been well-known to counsel – including leading counsel – involved in the earlier set of proceedings in Harvest Good, the present point sought to be challenged was indeed a novel point when it was first raised in the present application for leave.

13.  In other words, this is not a case where a litigant has deliberately refrained from raising all arguments known and available to him in one set of proceedings but has chosen to save a point or two for further argument in a second set of proceedings in case he should fail in the first set.

14.  The second point of importance is that in the present case, the significance of the restriction imposed by the s 69 appeal procedure only manifested itself gradually in the course of the applicants’ pursuit of their statutory appeals through the courts.  Initially, the disagreement between the applicants and the Commissioner over the contents of the stated case only related to the annexation of some primary materials to the stated case.  That was eventually resolved against annexation.  Four days before the scheduled hearing before Burrell J, the applicants by summons sought to have the stated case remitted to the Board of Review so that further findings of fact could be included there.  However, those findings of fact were limited in scope and could, according to the judge, be easily gleaned from the Board’s decision and were not, in any event, controversial or disputed (para 5 at p 265).  The specific findings in question can be found in para 6 of Burrell J’s judgment.

15.  When the case reached the Court of Appeal, the Court took the view that those further findings could not be read into the stated case, which must be taken to have included all the findings of fact relevant to deciding the questions of law before the Court.  On that basis, the applicants proceeded with their appeal: see paras 10 to 14 of the judgment of the Court of Appeal (at pp 260-261).

16.  Pausing here, it is therefore plain that the fact that the case stated procedure limited the applicants to those findings of fact actually made by the Board and set out in the stated case did not, up to the stage before the Court of Appeal, have a significant impact on the ability of the applicants to argue the relevant questions of law raised before the Court, or the ability of the Court to decide those questions on the merits of the case.  But this was not to be so when the applicants appeared before the Court of Final Appeal.

17.  As is apparent from the judgment of the Court of Final Appeal (at p 75), their Lordships regarded the buying of shares, other than for investment or as an incident in the carrying on of a business of share trading, as a gamble or akin to a gamble (para 65), and traditionally, ‘gambling is not seen as carrying on a trade’ (para 66).  This had a serious implication on the case of the applicants who were seeking to argue that the husband’s share dealing activities were carried on in the course of a business or trade, because those activities could be regarded as having been conducted by him as a gamble or akin to a gamble, which would not be treated as trading.

18.  Furthermore, drawing upon Commonwealth cases on gambling and share trading, McHugh NPJ, in his leading judgment, came up with a list of 25 factors which are relevant in determining whether a person who buys and sells shares is carrying on a business, rather than engaging in gambling or as something akin to gambling (para 95 at pp 87-88).  His Lordship then pointed out, by reference to these 25 indicia, that in fact, the applicants had claimed in evidence before the Board of Review that the husband had fulfilled a substantial number of these factors.  The learned judge concluded that if the Board had accepted the husband’s claim about these factors, he would have thought that ‘the only reasonable conclusion was that those facts and the other facts accepted in [the] appeal as found by the Board established that the husband was carrying on the business of a share trader’ (para 101 at p 91).  But unfortunately, the judge noted, the Board made no findings on any of these matters.  In those circumstances, given the limitations imposed by the case stated procedure, the Court of Final Appeal was bound by the ‘non findings’ of the Board of Review.  In other words, the appellate court simply could not go outside the four corners of the stated case.  That being the case, and given that the applicants bore the burden of proof, the appeal was dismissed.  See paras 102-103 at pp 92 to 93.  I would add that all this would have been otherwise if the appellate court had been dealing with an appeal on questions of law or, for that matter, an ordinary appeal by way of a rehearing, in which event the appellate court’s role would be less restrictive.

19.  It was in those very peculiar circumstances, Mr Swaine submits and I accept, that the adverse significance of the very restrictive case stated procedure dawned upon the applicants.  And it was in those circumstances that the applicants’ counsel eventually came up with the idea of challenging the constitutionality of the s 69 appeal procedure.

20.  In my view, all this distinguishes the present case from a typical case where a litigant seeks to reopen a finally adjudicated matter and have a second bite of the cherry.  All this is not to say that the discovery of a new point of law or a change in law, after the conclusion of a set of proceedings, is in itself a good ground for reopening the adjudicated matter by a fresh set of proceedings.  As a matter of general proposition, that must be wrong.  But the facts in the present case, as described above, are quite extraordinary and the application for leave to apply for judicial review was indeed taken out shortly after the conclusion of the first set of proceedings.  The present case is plainly distinguishable on the facts from a typical case of abuse.

21.  Nor does this case involve any election.  One simply cannot say that the applicants have elected for the appeal procedure by invoking it, so that they are now debarred from challenging the constitutionality of the appeal procedure itself.  Again, everything turns on fairness.  On the facts of the present case, the point of constitutionality did not occur to the applicants until after the Court of Final Appeal judgment in the circumstances described.  Even Mr Yuen on behalf of the Commissioner has refrained from suggesting that the applicants could have thought of the point earlier.  In my view, no election is in issue.

22.  Put another way, it would simply be unfair and artificial to require the applicants to have had the necessary foresight to make an application for leave to apply for judicial review to challenge the constitutionality of s 69 when they were pondering on what the next step should be after the Board of Review’s decision.  What originally appeared to them, and more importantly, to their advisers, as a run-of-the- mill tax appeal had grown and turned into something very different.

23.  Therefore on the question of abuse, I am not with Mr Yuen. 

24.  Turning to the question of delay, there was certainly delay in the matter.  But the question is whether there is any good reason for extending time. 

25.  There are several matters to bear in mind.  First, the importance of the point raised.  The constitutional right potentially engaged is a fundamental right, namely, a person’s right of access to court.  There can be no doubt that the proposed challenge raises an important point of general importance.  If sustained, it will have serious ramifications.  Even if leave were to be refused in the present case, the point would not go away.  For so long as s 69 remains in the statute book, it is potentially liable to be challenged by any aggrieved taxpayer.  In a sense, the sooner the matter is clarified, the better.  It is true that the point has already been raised in the District Court and been decided against the taxpayer in that case, and it is also true that barring any accident, the matter will go before the Court of Appeal.  But there is no guarantee that the point will be dealt with by the Court of Appeal.  It should be remembered that in Nam Tai, what was involved was a striking out application.  The point under consideration was only one of the many points raised by the defendant/taxpayer in that case to say that its defence should not be struck out.  Any one of those points, if upheld by the Court of Appeal in case of an appeal, would be quite sufficient for the immediate purposes of the defendant.

26.  Secondly, the applicants in the present case have not been guilty of delay in pursuing the statutory appeal procedure, which is, of course, the normal and primary route for a dissatisfied taxpayer to challenge the decision of the Board of Review.  I have already explained in some detail how the point about the constitutionality of s 69 dawned upon the applicants, rather belatedly, after the Court of Final Appeal’s decision, and therefore no real blame could be laid at their door for not taking out the challenge earlier.  Furthermore, the application for leave to apply for judicial review was taken out within three months after the Court of Final Appeal’s judgment.

27.  Thirdly, the Commissioner has not pointed out, whether by way of evidence or by way of submission, any substantial hardship, substantial prejudice or detriment to good administration, if the present challenge is permitted to proceed.  (I may be wrong, but I have been given to understand that the applicants have already paid the relevant taxes, so there is no question of any delaying tactics being played here.)  Of course, disturbing the finality of the previous litigation is in itself detrimental to good administration (of justice).  But this cannot be an absolute bar.  Thus, taking a very rough example, it has never been said that public interest does not permit a losing party from seeking to upset, by a fresh action, the final judgment in a previous set of proceedings, even though they have resulted in a judgment from the highest court, on the ground of fraud and the like.  My point is that the public interest in finality is not conclusive in the present context, although it is certainly a weighty consideration to bear in mind.  I do firmly bear that in mind.

28.  In particular, I bear in mind the relief sought by the applicants.  I have no difficulty with the declaratory relief.  But for the two orders of mandamus, if they are granted, they will render the courts’ decisions in the previous appeals wholly meaningless for the purposes of the parties (I would refrain from calling them a ‘nullity’, a word used by Mr Swaine in his submission).  But again I would not view this as an absolute bar.  Moreover, the question of delay and its relevance need not be finally dealt with at this early stage.  At the stage of substantive hearing, delay is still relevant in terms of the relief, if any, to be granted by the court: s 21K(6)(b).

29.  I have also borne in mind the substantive merits of the application.  Although similar arguments have been rejected in the District Court, Mr Yuen for the Commissioner has not seen fit to argue that the proposed constitutional challenge is not reasonably arguable.  Judging from the very detailed and careful judgment of the District Judge in Nam Tai, the arguments involved are not straightforward and certainly are not unarguable. 

30.  Having borne in mind all relevant circumstances, particularly those matters that I have specifically addressed, I take the view that my discretion should be exercised to extend time for applying for leave.  Furthermore, having satisfied myself with the reasonable arguability of the proposed challenge, I grant leave to move for judicial review.

31.  Having reflected on the parties’ oral and further written submissions, I would not direct that the substantive hearing shall not be held until after the outcome of the appeal in the Nam Tai proceedings is known (assuming that such an appeal will be pursued), a matter which was mooted at the hearing.  Given the importance of the point and the uncertainty that it will be dealt with by the Court of Appeal in the anticipated Nam Tai appeal, the application for judicial review should be proceeded with without delay. 

32.  I make an order nisi that the costs of the leave application be in the cause of the substantive application.  I certify for two counsel.

33.  I thank counsel for their assistance.