WONG CHAK SIN v. THE COLLECTOR OF STAMP REVENUE

DCSA 19/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

STAMP APPEAL NO 19 OF 2014

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DECISION

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INTRODUCTION

1. This is an appeal brought by Mr Wong Chak Kin (“the appellant”) against a stamp duty assessment dated 7 July 2014 (“the Assessment”) made by the Collector of Stamp Revenue (“the respondent") in respect of a sale and purchase agreement dated 17 July 2013 (“the Agreement”) for the property known as Flat F on 17/F of Jovial Court (Tower 1) of Peninsular Village, Discovery Bay City, Lantau Island, New Territories, Hong Kong (“the Property”) pursuant to section 14 of the Stamp Duty Ordinance, Cap 117 (“the Ordinance”).

BACKGROUND

The property transaction

2. By a preliminary sale and purchase agreement dated 3 July 2013 (“the Preliminary Agreement”), the appellant, as trustee for and on behalf of Ms Wong Lai Lok, Josephine (“Ms Wong”), who is the daughter of the appellant, purchased the Property from one Mr Lim Poh Chye (“Mr Lim”) at the consideration of $6,000,000.

3. The Property is a residential property within the meaning of section 29A(1) of the Ordinance.

4. On 17 July 2013, the appellant, as trustee for and on behalf of Ms Wong, entered into the Agreement in the capacity as purchaser with Mr Lim.  The Agreement incorporated the terms of the Preliminary Agreement.

5. There was a rider in the Agreement wherein the appellant and Mr Lim confirmed understanding and acknowledgment of the Government’s announcement on 26 October 2012 in respect of special stamp duty and buyer’s stamp duty (“BSD”).  The paragraph in the said rider pertaining to BSD read as follows:-

“…… the Government announced that the Government would amend [the Ordinance] to introduce with effect from 27 October 2012 [(‘the Effective date)] BSD on residential properties acquired by any person (including a company incorporated) except a Hong Kong Permanent Resident [(‘HKPR’)]. BSD is to be charged at a flat rate of 15% on all residential properties, on top of the existing stamp duty and the special stamp duty, if applicable.”

6. The Agreement was stamped with ad valorem stamp duty in the amount of $180,000 under the then Item (g) [reclassified as Item (g) of Scale 2 under the Amendment Ordinance, see para 12 below] of head 1(1A) in the First Schedule to the Ordinance.

7. Ms Wong was a minor as at the dates of the Preliminary Agreement and the Agreement.  She reached the age of 18 on 3 September 2013, exactly 2 months after the Preliminary Agreement was signed.

8. By an assignment dated 18 September 2013 (“the Assignment”), Mr Lim assigned the Property directly to Ms Wong at the request and direction of the appellant as confirmor.

The legislative history

9. Pursuant to the Government’s announcement of proposed measures to address the overheated residential property market on 26 October 2012, the bill seeking to implement those measures was published in the Gazette as the Stamp Duty (Amendment) Bill 2012 (“the Bill”) on 28 December 2012.

10. Under the provisions of the Bill, BSD would apply to a chargeable agreement for sale of any residential property executed on or after the Effective date.  The Bill provided exemption from BSD if, among others,

(a)  the purchaser is a HKPR acting on his or her own behalf; or

(b)  the purchaser acts in the transaction as a trustee or guardian for a HKPR who is a minor (“the Minor Exemption”).

11. The Bill was then scrutinized by members of the Legislative Council who sat on the Bills Committee.  The Bills Committee was concerned that the Minor Exemption might be abused thereby undermining the effectiveness of the BSD.  In response to this concern, the Government agreed to adopt the amendment proposed by a member of the Bills Committee at the resumption of the second reading of the Bill in February 2014.  As a result, the Minor Exemption was removed from the Bill.

12. The Stamp Duty (Amendment) Ordinance 2014 (without the Minor Exemption) (“the Amendment Ordinance”) was enacted and published in the Gazette on 28 February 2014.  It came into effect retrospectively from the Effective Date.

Stamp duty assessment

13. Following the enactment of the Amendment Ordinance, Messrs Christopher Li & Co (“CLC”), on behalf of the appellant,  submitted a supplemental information form (“the Form”) together with a statutory declaration made by Ms Wong dated 12 February 2014 (“the Statutory Declaration”) to apply for exemption from BSD in respect of the Agreement.  In the Statutory Declaration, Ms Wong declared, among others, the following:-

(a)  She was the sole buyer and beneficial owner of the Property under the Agreement.

(b)  As at the date of the Agreement, she was a HKPR within the meaning of section 29A of the Ordinance.

(c)  She had acquired the Property on her own behalf.

14. The respondent rejected the application for exemption from BSD in respect of the Agreement and demanded the payment of BSD thereon in the amount of $900,000 (“the Proposed Assessment”) pursuant to head 1(1C) in the First Schedule to the Ordinance.

15. On 3 June 2014, CLC wrote to the respondent contending that the Agreement was not chargeable with BSD.  In support of their contention, CLC stated the following:-

(a)  Ms Wong purchased the Property under the Preliminary Agreement as the principal with the appellant (her father) as the trustee.  The appellant who signed the Preliminary Agreement and the Agreement acted as trustee because Ms Wong did not attain the age of 18 at the time she purchased the Property.  Ms Wong executed the Assignment in her personal capacity when she attained the age of 18.

(b)  Ms Wong was a HKPR at the time of purchasing the Property under the Preliminary Agreement.

16. The respondent replied to CLC maintaining that the Agreement was chargeable with BSD.  The respondent took the view that the exemption under section 29CB(2)(a) of the Ordinance was not applicable because the appellant was not acting on his own behalf under the Agreement, but as trustee for and on behalf of Ms Wong.

17. The appellant paid the BSD of $900,000 as demanded in the Proposed Assessment.  The Agreement was stamped with BSD in the aforesaid amount under head 1(1C) in the First Schedule to the Ordinance.

18. Under section 13(3)(b) of the Ordinance, the respondent raised on the appellant the Assessment in respect of the Agreement as follows:-

BSD Chargeable ($6,000,000 x 15%)	$900,000.00
Less : Amount already paid	$900,000.00
Amount Payable	Nil
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The appeal

19. The appellant, through another firm of solicitors, namely, Messrs Simon CW Yung & Co (“SYC”), lodged an appeal to this Court.

20. The above facts, which have been summarized by the respondent by way of ‘Case Stated’, are not disputed by the appellant’s counsel at the commencement of the hearing.  

Question for this Court

21. The question submitted for the opinion of the Court is: whether the Agreement is chargeable with BSD?

DISCUSSION

The appellant’s grounds for the appeal

22. The appellant’s grounds of appeal, with respect, are rather general, if not superficial.  They are: (1) legislation in Hong Kong must conform with principles of legality and requirement of proportionality; and (ii) it must not contravenes the Basic Law (“BL”).

23. The appellant relies on Article 6 of BL which provides as follows:-

“The Hong Kong Special Administrative Region shall protect the right of private ownership of property in accordance with law.”

24. The appellant’s complaint is that at all times before the Government’s proposal to remove the Minor Exemption (including inter alia the times when the Preliminary Agreement and the Agreement were entered), the Government had never made any announcement to the public that a purchaser (like the appellant in the present case) enters into an agreement as a trustee for another person who is a HKPR and a minor (like his daughter Ms Wong in the present case), the agreement would be, or even might be, chargeable to BSD.

25. Accordingly, as the appellant argues, the eventually enacted Amendment Ordinance, insofar as those provisions or parts giving rise a retrospective effect that BSD is chargeable for an agreement signed by a purchaser as a trustee on behalf of another person who is a HKPR and a minor, has allegedly constituted an interference with those purchasers’ private ownership of their property (ie their money) without any prior announcement, and therefore contravenes Art 6 of BL.

26. Further, besides the lack of prior announcement, the appellant argues that there was no justification, such as public interest consideration, on the proportionally principle, for the Government to retrospectively impose BSD on those purchasers like the appellant, who is a HKPR, enters into a transaction as a trustee for another person who is a HKPR and a minor.

27. Mr Ernest Koo, the appellant’s counsel, admits that he was not able to find any authority – whether local or overseas -- to support the above propositions.  He sought to rely on an English case which dealt with Article 1 of First Protocal under the European Convention of Human Rights (“ECHR”): see R (on the application of St Matthews (West) Ltd & ors) v HM Treasury [2014] STC 2350, per Andrews J at §§56-60.

28. Based on the cited paragraphs in the above case and the rather vague submissions (with no authority cited in support) that legal certainty under the rule of law should not allow such a situation to occur, the appellant submitted that the Agreement shall not be chargeable to BSD.

FINDINGS

29. I do not find the above grounds relied on by the appellant convincing at all.  I shall deal with them under the separate headings below.

Retrospective legislation

30. The appellant accepts that there is no prohibition against retrospective legislation in Hong Kong. That is, in my judgment and as Mr Wilson Leung, counsel for the respondent, submits, entirely correct.  This is so especially in the tax context.  As Slade J explained in James v IRC [1977] 1 WLR 835, 838 G-H:-

“Thus, in answer to submissions to the contrary made by the taxpayer, it is in my judgment clear that, as the constitutional law of England stands today, Parliament has the power to enact by statute any fiscal law, whether of a prospective or retrospective nature and whether or not it may be thought by some persons to cause injustice to individual citizens. If thewording of that legislation is clear, the court must give effect to it, even though it may have, or will have, a retrospective effect. It has no power, as the taxpayer submitted, to refuse to give effect to it on the ground that the protection of private citizens requires it.” [emphasis added]

31. I further agree with Mr Leung that there is often good reason for tax legislation to be enacted with retrospective effect; otherwise there may be a flood of avoidance measures taken by taxpayers between the time of Government announcement and the time of eventual legislative enactment.

Article 6 of BL

32. In my judgment, the appellant’s argument that the Amendment Ordinance as enacted did not contain the Minor Exemption and therefore has violated Art 6 of BL is completely flawed.

33. As Stock JA observed in Fine Tower Associates Ltd v Town Planning Board [2008] 1 HKLRD 553 (CA) at §13, Art 6 adds little to the protections under Art 105 BL.

34. Art 105 BL provides:-

“The Hong Kong Special Administrative Region shall, in accordance with law, protect the right of individuals and legal persons to the acquisition, use, disposal and inheritance of property and their right to compensation for lawful deprivation of their property.

Such compensation shall correspond to the real value of the property concerned at the time and shall be freely convertible and paid without undue delay.

The ownership of enterprises and the investments from outside the Region shall be protected by law.” 

Art 6 and Art 105 not engaged

35. However, it has been clearly established by the higher courts in our jurisdiction that Art 105 (and Art 6) of BL have no application to tax legislation: Weson Investment Ltd v CIR [2007] 2 HKLRD 567 (CA), §§18-19 per Rogers VP, §§85-86 per Tang VP.

36. This is because taxation is governed by a separate provision in BL, viz Art 108:-

“The Hong Kong Special Administrative Region shall practise an independent taxation system.

The Hong Kong Special Administrative Region shall, taking the low tax policy previously pursued in Hong Kong as reference, enact laws on its own concerning types of taxes, tax rates, tax reductions, allowances and exemptions, and other matters of taxation.”  

37. As Rogers VP explained in Weson at §18:-

“In my view Article 105 of the Basic Law has no application to legitimate taxation. Taxation is governed under Article 108 of the Basic Law …… When the Government imposes tax on the individual, of necessity it deprives the individual of his property without any right to compensation. The two articles are, as Mr Ismail, who appeared on behalf of the Commissioner, argued, mutually exclusive.”

38. Similarly, Tang VP (as he then was) rejected (at §85) the taxpayer’s argument that tax legislation must satisfy a proportionality requirement imposed by Art 105 BL:-

“I do not believe it is right to read BL 105 and 108, as if the right of the HKSARG to tax has to strike such a fair balance. Rather, I am of the view that unless the taxation scheme cannot be regarded as genuine, but was in fact a disguised expropriation of property, BL 105 has no application. And the court has no power to interfere.”

39. Therefore, I agree with the respondent’s submission that the appellant’s argument, insofar as it is based on Art 6 of BL, has been completely misconceived.  Based on the above, I find Art 6 and Art 105 of BL are not even engaged in the present case. As such, there is no need for the Amendment Ordinance to satisfy any test of “proportionality” as alleged by the appellant.

No breach of proportionality

40. In any event, I agree with Mr Leung that, even assuming there is a requirement of proportionality (and that in my view will be a very big assumption), the appellant has entirely failed to show why it is not satisfied.

41. The appellant’s argument on the lack of proportionality basically relied on the fact that the Bill contained the Minor Exemption whereas the enacted version of the Amendment Ordinance did not.

42. I entirely agree with Mr Leung’s submission that it is obvious that a bill which is published by the Government may or may not be ultimately enacted in the same form.  Every bill must go through the normal legislative process, and there is always the possibility that it may be amended before being finally enacted (or it may even not be enacted at all).  That is the very point of the legislative process.

43. In essence, the appellant’s contention is based on the proposition that whenever the Government publishes a bill, the Government is somehow undertaking or promising that the bill will ultimately be enacted in the same form.  In my judgment, such proposition is entirely untenable and must be wrong as a matter of law. 

44. The respondent prayed in aid that, insofar as the appellant relies on information published on the Inland Revenue Department’s website, the website contains a clear disclaimer:-

“The information provided by the Inland Revenue Department (‘IRD’) on this web site is for reference only. Whilst the IRD endeavours to keep the content of this web site accurate and up-to-date, no warranty or guarantee, express or implied, is given as to the accuracy of the information. The Government of the Hong Kong Special Administrative Region (‘the Government’) and the IRD accept no liability for any loss and damages arising from or related to the use of the contents.”

45. In my view, the respondent must be entitled to rely on such disclaimer.  I note that the appellant has chosen to keep quiet on this matter.

CONCLUSION

46. By reason of the aforesaid, I have no hesitation to find that the appellant’s appeal contains of no merits at all and must be dismissed.  Hence, the question posed to the Court must be answered in the positive, namely, the Agreement is chargeable with BSD.

47. Costs should follow the event.  I make an order nisi that the appellant shall pay the costs of the respondent in this appeal, such costs to be taxed if not agreed with certificate for counsel.  The order will become absolute in the absence of any application by the parties to vary the same within 14 days.